Wednesday, June 25, 2014

Seeking Alpha: Can Magellan Find A Route To An Even Higher Multiple?

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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