Seeking Alpha: A More Appealing Opportunity At Macquarie Infrastructure

Stock market volatility is usually spoken of as a bad thing, but experienced investors know that the ups and downs give them the opportunity to buy or sell at better prices. Given that I don't see anything fundamentally wrong with Macquarie Infrastructure Corporation (NYSE:MIC), I think the stock's 20%-plus decline since my lukewarm call (based on valuation) in early June just may be an interesting second chance opportunity for investors to buy into a solid long-term dividend-centric infrastructure story.

Investors are clearly worried about anything related to petroleum these days, but I think MIC's storage operations are a little more stable. I also believe that MIC will have the opportunity to use its relatively healthy balance sheet and liquidity position to cherry-pick high-quality midstream assets trapped within bad balance sheets. Even if MIC doesn't elect to go that route, further expansion in airport operations and power gen can soak up capital and convert it to future dividend streams. I continue to think that a low-to-mid $90s fair value is reasonable for the shares, with Atlantic Aviation and IMTT driving the overwhelming majority of the cash flow and value.

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A More Appealing Opportunity At Macquarie Infrastructure

Seeking Alpha: Macquarie Infrastructure Moves From Strength To Strength

I love high-quality "boring" infrastructure stories, as these companies can do very well for themselves by managing toll-taking operations that function as virtual monopolies. Macquarie Infrastructure (NYSE:MIC) has shown itself to be adept at both managing the operations it has and redeploying capital into new operations that generate incremental cash flow, and I'm not surprised that the shares are up about 15% from when I last wrote about them in the summer of 2014.

Up almost 40% over the past year and more than 160% over the past three years, I don't think these shares are the bargain they once were, but I think there's still a worthwhile long-term opportunity here. I have some concerns as to whether the shares can support a mid-teens forward EBITDA ratio over the long haul, but the company's incremental growth investments are coming at a 7x multiple, suggesting significant upside to new investments. What's more, Macquarie Infrastructure has access to capital that others don't and that could allow the company to pluck away assets from distressed players at attractive prices.

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Macquarie Infrastructure Moves From Strength To Strength

Seeking Alpha: Macquarie Infrastructure Gets Bigger And Better

It's not often that an M&A transaction expands a company's present-day business, improves its tax situation, upgrades its growth prospects, and removes operating risk from the business. And yet, Macquarie Infrastructure Company LLC (NYSE:MIC) achieved all of that when it bought its partners' 50% interest in International Matex Tank Terminals (or IMTT)). I liked Macquarie back in December and even after this 30% run in the shares I still believe the shares are an undervalued play on quality infrastructure assets.

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Macquarie Infrastructure Gets Bigger And Better

Seeking Alpha: Macquarie Infrastructure Once Again Thinking About Growth

Like so many other asset plays underpinned by debt, Macquarie Infrastructure (MIC) ("Macquarie") had a near-death experience in 2009 as the combination of suddenly weaker economic activity and the meltdown of the credit markets choked off both its cash flow and its access to liquidity. The company survived, if by the skin of its teeth, and seems to have emerged as a wiser, or at least more conservative operator. Now the company is once again thinking from a growth point of view, and positioning the company to benefit from a stronger economic recovery.

Certainly there are no guarantees that management's new revised vision will work out. The aviation operations are quite cyclical and the shares have already over 40 times from their crisis lows. Even so, the company is investing in businesses where it looks to have leverageable scale and the valuation does not seem all that demanding. That makes this a worthwhile name to consider, particularly for investors looking for income-oriented plays with the means of offsetting an environment of rising rates.

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Macquarie Infrastructure Once Again Thinking About Growth