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Why Is Magellan Midstream (MMP) Down 1.9% Since Last Earnings Report?

·3 min read

A month has gone by since the last earnings report for Magellan Midstream Partners (MMP). Shares have lost about 1.9% in that time frame, outperforming the S&P 500.

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

Magellan Midstream Q4 Earnings, Revenues Beat

Magellan Midstream reported fourth-quarter adjusted net income per unit of $1.24, above the Zacks Consensus Estimate of $1.12 and the year-earlier quarter’s earnings of 94 cents per unit.

The outperformance reflects higher transportation volumes, as the economy re-opens amid a sharp pick-up in travel demand, to go with increased drilling activities spurred by the commodity price revival.

MMP’s revenues of $809.3 million rose 45.1% from the fourth quarter of 2020 and beat the Zacks Consensus Estimate by 10.4%.

Operational Performance

Refined Products: Operating margin of $302.7 million was up from the year-ago period’s $237.7 million. Transportation and terminals revenues improved 12.6% to $353.6 million on record transportation volumes, which continues to rebound from 2020’s pandemic-led dip, plus contributions from MMP’s Texas pipeline expansion projects. A mid-year tariff hike in 2021 also buoyed current-period results. There was also a significant rise in product margin on the back of higher profitability and blending sales volume.    

Crude Oil: Operating margin of $103.8 million decreased 5.4% from the fourth quarter of 2020 to $103.8 million as transportation and terminals revenues fell due to overall lower tariff rates on Magellan Midstream’s pipeline systems, reduction in volumes shipped through the Houston distribution system and a dip in storage sales.

Distributable Cash Flow

Magellan Midstream’s distributable cash flow (DCF) for the fourth quarter was up 10% year over year to $296.8 million. In 2021, DCF increased from $1 billion to $1.1 billion, with DCF coverage coming at a solid 1.24 times.

On Jan 25, MMP announced fourth-quarter cash distribution of $1.0375 per unit ($4.15 on an annualized basis), which was unchanged sequentially. The amount will be paid out on Feb 14 to its unitholders of record as of Feb 7. For 2021, management raised its distribution by 2 cents to $4.13 per unit, signifying 20 straight annual payout hikes since its 2001 IPO.

2022 Guidance

The partnership assumes a 4% improvement in total refined products shipments for 2022 over 2021. Free cash flow is expected to be $1.46 billion, or 575 million post distributions. Meanwhile, Magellan Midstream expects to generate a DCF of $1.075 billion, slightly down year over year, primarily due to lower earnings related to asset divestments.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Magellan Midstream has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 this revision indicates a downward shift. 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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