The Oil & Gas Pipelines is a 5 trillion dollar industry. Corporations like Williams Company, Spectra Energy, and Kinder Morgan Energy Partners are all market cap-leaders in this Basic Material sector division. However, one company, Magellan Midstream Partners (MMP), a 3.1 billion dollar mid-cap equity, stands out from the rest of the industry. Taking a look at the businesses’ financial figures and overall strategic plan, there is evident evidence that this corporation has the potential to produce high capital gains for investors.
Like most of the businesses in this industry, Magellan, in response to Reuters, “is principally engaged in the transportation, storage and distribution of refined petroleum products.” Having bases in the Gulf of Mexico, what separates Magellan from its rivals is its area of distribution. This Tulsa, Oklahoma-based corporation’s, in keeping with Yahoo! Finance, “pipeline system transports petroleum products and liquefied petroleum gases from the Gulf Coast refining region of Texas through the Midwest to Colorado, North Dakota, Minnesota, and Illinois.” With such a limited geographic base, some skepticism may be allocated for serving only a handful of states. However, there is important demand for oil in these regions. According to varied gas price resources, the price of gas is around $3.50 in lots of places in Chicago. And in North Dakota, prices range around the $3.20 mark. High demand means higher prices, and with crude oil futures rising to near $65 dollars, up 20% from its lows earlier this year, coupled with a summer season with high travel rates and a powerful potential for hurricane activity, Magellan can be a direct beneficiary of such news. It’s true that companies like Williams and Spectra would also be impacted in an analogous manner, but what further differentiates the “8,500-mile petroleum products pipeline system” Magellan has from its rivals is its fundamentals.
Magellan has only seen a drop in share price once year-over-year since its IPO near the start of medium salt distillation column this century. Much of this success can be attributed to strong revenue growth, especially over the past year. Year-over-year, Magellan has seen, according to Capital IQ, about 4.60% quarterly revenue growth. While many investors may argue against such a low number, out of the three aforementioned companies, Williams, Spectra, and Kinder-Morgan, only Spectra has a higher number. However, what Magellan has that is healthier than Spectra is 2.5 times the revenue per share. As well as, while both Spectra and Magellan support strong operating margins, Magellan especially with its 20% trailing twelve month figure beats out both Williams and Kinder-Morgan in this very important statistic. Success on the highest-line should transcend to success on the bottom line as well.
Profit margin for Magellan is 15.70%. Much of this number directly is involved with this company’s forward P/E ratio of 18.3. Not only is that this figure significantly below the average multiple for the industry, however the ratio is below Spectra’s 18.4 forward multiple and Kinder-Morgan’s 26.2 forward ratio as well. Examining this number, would it’s fair to evaluate that Magellan shouldn’t be only a mid-cap growth stock, but a value equity as well? Unfortunately, while price to sales at 2.53, enterprise value to revenue at 3.21, and enterprise value to EBITDA at 12.47 are all pretty similar or below the opposite companies, it’s more fair to say that Magellan is a still rapidly growing corporation. And eventually, if price stays the identical as it is now there could possibly be a robust argument that Magellan is undervalued in the coming months and years. While the PEG ratio of 2.41 shouldn’t be generally an incredible number to evaluate strong growth for a company, relatively for the industry, the number is lower than most other companies and also needs to contribute to strong growth potential sooner or later.
What is also important when taking a look at any company is to examine the management team and the ratios that they directly affect. Fortunately, CEO Don Wellendorf and his 1,064 employees have done an awesome job relative to the corporate’s competitors. Looking on the important ROE, Magellan reports a figure of 23.91%. This figure is not only higher than the industry at 14.30%, but higher than Spectra and Williams’ figures as well. ROA of 8.62% over the following five years can be higher than the industry average, in addition to having an ROI of 9.70% over the subsequent five years which is also higher than the industry. Cash flow, both leveraged and operating, is both positive, which is not the case for a lot of the other companies in this industry. Capital expenditure at 33.5 over five years is nearly double that of the industry. While solvency will not be as strong because the industry or a number of the competitors, again, Magellan has only recently started to trade publicly, and remains to be growing–quite impressively.
Therefore, once again, Magellan shouldn’t be a worth company, but a growth equity. Dividend yield at over 5.2% is phenomenal for this industry and sector, and investors should benefit from owning this stock even if there’s an off chance that Magellan does not produce. However, with the aforementioned strategic plan and fundamentals, Magellan, trading below its 50 day SMA could be a superb consideration of any investor’s portfolio.