Magellan Midstream Partners L.P.'s (MMP) - Get Report has enough money and good chances for growth, prompting analysts at BMO Capital Markets to expect the stock for the petroleum products transportation and distribution company to rise.
BMO Capital Markets analysts Danilo Juvane and Earl Lee initiated coverage of the Tulsa, OK-based company at Outperform with an $80 price target. Shares of Magellan rose by 1.4% to $68.08 at around 11:00 a.m. EST. Magellan Midstream shares are down about 9.8% so far this year. The last time the company traded at more than $80 a share was in February.
"Anchored by the longest demand-driven refined products pipeline systems in the country with access to nearly 50% of the nation's refining capacity, Magellan Midstream Partners has long offered a solid platform of distribution growth, excess coverage, and ample financial flexibility," wrote Juvane and Lee in a research note on Monday.
"With industry-leading returns on invested capital (ROIC) on a largely fee-based and defensive business, Magellan Midstream Partners offers the best risk-adjusted returns in the midstream sector, an attribute we think is likely to continue as the company capitalizes on the growing theme of product exports from the U.S. Gulf Coast," the BMO analysts continued.
Magellan Midstream Partners is boosting its footprint in Corpus Christi and Houston, two cities that were recently ravaged by Hurricane Harvey that are major product export hubs, and is on the verge of extending its value chain by offering customers "the ability to secure more attractive international product pricing through marine storage and export facilities that complement its strategic Permian pipeline position," BMO said.
The Action Alerts PLUS holding, which has a market capitalization of $15 billion, is also one of the preferred yield plays in Cramer's charitable trust portfolio.
"Current units offer an approximate 5.4% distribution yield that is backed by the company's commitment to maintain distribution coverage of 1.2 times," Cramer and the AAP team wrote in a Dec. 8 note.
BMO's Juvane and Lee, meanwhile, estimate a five-year distribution compound annual growth rate of approximately 7% and forecast a coverage ratio of about 1.3 times, "further underscoring the strength of the balance sheet underpinned by solid growth projects."
The AAP team noted that they believe the demand for U.S. exports will remain strong and the demand for Magellan Midstream Partners' pipelines will increase with OPEC extending its production cap through 2018. Action Alerts PLUS has set an $89 price target on the stock.
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