Seeking Alpha: From A Lower Starting Point, Magellan Midstream Looks More Interesting

About a year ago I thought that Magellan Midstream Partners, LP (NYSE:MMP) was priced a little too richly for my tastes. The units have since fallen about 10%, which is actually pretty good considering the weak overall performance of MLPs and the steeper declines of comparables like Plains All American Pipeline, LP (NYSE:PAA), Sunoco Logistics Partners, LP (NYSE:SXL), and Enterprise Products Partners, LP (NYSE:EPD).

Although MLPs have sold off as investors have backed away from almost everything related to energy, Magellan has continued to pursue growth projects predicated upon ongoing growth in U.S. crude production, transportation, and storage. I don't quite believe that Magellan is a screaming bargain today, but I believe the company is likely to deliver strong distribution growth over the next couple of years and good mid-single digit distributable cash flow growth over the next decade. Magellan's yield is lower than normal for an MLP, but the company's liquidity position looks pretty solid, the distribution coverage is good, and the cost of capital is low - all of which argues for a quality premium.

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From A Lower Starting Point, Magellan Midstream Looks More Interesting