Magellan Midstream Partners, LP (MMP)
stands out in the MLP crowd for a lot of positive reasons. The company
is a large player in refined product distribution, and is expanding its
crude oil transportation business. The company's fee-based business
model generates consistent performance, and the company's decision years
ago to acquire its GP units and unwind the incentive distribution
rights gives it a simpler structure and much lower cost of capital. Add
in growth-oriented capital projects and a respectable balance sheet, and
there's a lot to like.
Unfortunately, I think the Street likes it
a little too much. I would definitely not bet against this company, but
the valuation seems to imply either a level of distributable cash flow
growth that I find improbable, or a discount rate that I find
unpalatable for equity investments. Other readers may not be bothered by
the low discount rate given the many good qualities of this business,
but I just don't see enough upside for my own investment purposes.
Continue here:
Can Magellan Find A Route To An Even Higher Multiple?
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