Pipeline operator Magellan Midstream Partners, L.P. (MMP) raised its third quarter 2010 cash distribution by 1.7% sequentially and 4.9% year over year to 74.50 cents per unit (or $2.98 per unit annualized). The cash distribution is up 184% since its initial public offering (IPO) in the beginning of 2001. Magellan’s new distribution is payable on November 12 to unitholders of record as on November 5, 2010.
Tulsa, Oklahoma-based Magellan Midstream is a master limited partnership (“MLP”) that owns and operates a diversified portfolio of energy infrastructure assets. The partnership primarily transports, stores and distributes refined petroleum products and, to a lesser extent, ammonia.
Magellan’s announced distribution hike is in sync with its goal of raising the annual distribution by 4% in 2010. The partnership has a proven history of distribution growth with 34 quarterly increases.
Even though we have a Zacks #2 Rank (short-term Buy rating) on the partnership in the short-run, we are Neutral on Magellan in the long-run.
Our long-term recommendation on Magellan Midstream takes into account the challenging operating scenario for pipeline operators. While the partnership’s liquidity position is sound and growth potential is also attractive, we continue to believe that the near- to medium-term outlook for petroleum products expenditure will stay tentative.
Another concern for Magellan is the weak demand for refined products that translates into lower pipeline throughputs. Given these headwinds, we believe that Magellan Midstream’s current valuation adequately reflects its fairly balanced risk/reward profile. As such, we see limited upside from current levels.
MAGELLAN MDSTRM (MMP): Free Stock Analysis Report
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