Magellan Midstream: Moat Largely Intact, Sell-Off An Over-Reaction


  • Magellan Midstream was sold off following its 2019 result reporting.
  • However, its core business - transportation and terminals - continues to grow steadily.
  • Its pricing power in refined products transportation - the core of core of its business - seems to be intact and robust although crude oil transportation may face continued uncertainties.
  • I believe the sell-off has created an opportunity for long-term investors.
  • I do much more than just articles at The Natural Resources Hub: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

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Megallen Midstream Partners, the leading refined products pipeline operator

Since Magellan Midstream Partners, L.P. (NYSE:MMP) reported the 4Q2019 and full-year 2019 results, the stock had been sold off by some 8%. Although it beat Wall Street EPS estimate, the company missed the annual revenue estimate by nearly $100 million (see here and here).

Fig. 1. The revenue, gross profit, operating income, and net income of Magellan Midstream, by year (upper) and by quarter (lower). Sourced from

The critical questions to me are these: Is the pricing power of the company still intact? Going forward, will it resume top-line growth?

Below, let's try to find the answers.

Why did revenue drop in 2019?

The decrease in revenue from 2018 to 2019 occurred in product sales, which has traditionally been more volatile than transportation and terminals - the core business of Magellan. Revenue from transportation and terminals actually increased by 4.9% year-over-year and has been consistently rising at a CAGR of 6.2% since 2014 (Fig. 2). So, there is nothing to be concerned about here.

Fig. 2. Annual revenue by sources. Source: Laurentian Research based on Magellan annual reports.


Volume shipped. The total volume of refined product shipments increased by 1.0% from 2018 to 2019 and at a CAGR of 4.4% since 2007.

The total volume of crude oil shipments experienced faster growth than refined products in the last few years, driven by the shale revolution. The throughput via Magellan 100%-owned pipelines rose 30.6% from 2018 to 2019 and at a CAGR of 40.7% since 2010. Magellan sold a 20% interest in the BigTex pipeline, causing its share of the 2019 volume to have dropped by 24.4%. The throughput via the Saddlehorn, another partially-owned asset, more than doubled. Combined, crude oil throughput increased by 22.4% from

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Disclosure: Besides myself, TNRH is fortunate enough to have multiple other contributing authors who post articles for and share their views with our thriving community. These authors include Silver Coast Research, ..., among others. I'd like to emphasize that the articles contributed by these authors are the product of their respective independent research and analysis.

Disclosure: I am/we are long MMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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