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Why Is Magellan Midstream (MMP) Up 10.2% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Magellan Midstream Partners (MMP). Shares have added about 10.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Magellan Midstream due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Magellan Midstream Q1 Earnings Beat Estimates, DCF Falls

Magellan Midstream Partners reported first-quarter 2020 adjusted earnings per unit of $1.28, surpassing the Zacks Consensus Estimate of $1.03 as well as the year-ago profit of $1.06. Strong contribution from Refined Products unit aided results.

Quarterly revenues of $783 million not only rose from the year-ago level of $629 million but also outpaced the Zacks Consensus Estimate of $679 million.

Segmental Performance 

Refined Products: Revenues from the segment came in at $629 million, up from $468.5 million recorded in the year-ago period. Notably, total volumes shipped in the quarter under review were 119.8 million barrels compared with 116.1 million barrels a year ago. Operating margin from the segment expanded to $305.8 million in the first quarter from $207.4 million in the corresponding period of 2019. While depreciation costs increased year over year, general & administration expenses decreased. Operating profit of the segment increased 78.6% year over year to $233 million.  

Crude Oil: Quarterly revenues grossed $164.5 million, up 6% year over year on the back of higher volumes. Total volumes shipped in the quarter were 75.1 million barrels, down from 79.4 million barrels a year ago. Operating margin decreased to $119.9 million from $142.8 million in the prior year. Operating profit of $93.7 million declined 17.6% year over year due to lower volumes and margins.

DCF & Balance Sheet

Magellan Midstream reported that its distributable cash flow (DCF) for the first quarter summed $306.5 million, dipping 3.6% from the year-ago level.

Notably, on Apr 23, the partnership announced first-quarter cash distribution of $1.0275 per unit ($4.11 on an annualized basis), representing 2% annual growth. The amount is payable May 15 to unitholders of record as of May 8.

As of Mar 31, 2020, the partnership had cash and cash equivalents worth $139 million, and a long-term debt of $4.75 billion.

2020 Outlook

As a result of the coronavirus-caused oil price plunge, management expects to generate distributable cash flows in the $1,000-$1,075 million range for the full year and is planning to retain the current level of cash distribution for the rest of the year. Magellan Midstream projected second-quarter 2020 earnings per unit between 35 cents and 50 cents while for the full year, earnings are estimated in the $3.35-$3.70 band.

The firm plans to spend $400 million on completing certain expansion projects in the ongoing year. Additionally, Magellan Midstream continues to look out for more than $500 million worth of potential organic growth projects in their nascent stages of development.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -5.95% due to these changes.

VGM Scores

Currently, Magellan Midstream has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, Magellan Midstream has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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