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MPLX's Mad Management's March Against Meager Valuation

Apr. 09, 2021 1:32 PM ETMPLX LP (MPLX)53 Comments
Patient Tech Investor profile picture
Patient Tech Investor


  • Management seems determined to lower its yield.
  • MPLX's financial health improved significantly last year paying all of its cash needs through operations plus added cash.
  • The company's highest priority for its extra cash is/was rebuying stock.
  • We expect a modest increase in its dividend later this year or early into next year.

Although the nation's economy suffered last year a deep decline, MPLX (NYSE:MPLX) executed at a high level and achieved its objective for cash flow independence a year earlier than planned. With this goal achieve, exploring what's next is paramount for investors. During the last conference call, the company stated that it has to balance its future cash expenditures between four categories: increased dividends, stock buy backs, capital and leverage reduction. Let's go explore.

Quarterly results

During the February Conference, the company noted a variety of important markers and results. Among those, it reported are:

  • Achieved Adjusted EBITDA for the quarter and year at $1.4 billion and $5.2 billion.
  • Grew total BcF in 2020 over 2019.
  • Achieved its operating expense reduction target of $200 million.
  • Generated $1.2 billion in distributable cash or 1.58 times the distribution.
  • Ended with a leverage ratio of 3.9 with $3.3 billion left available to borrow.
  • Generated an excess of $266 million after all the cash expenses were paid.
  • Purchased $33 million worth of stock.

MPLX had a good year in-spite of the uncertainty. It also noted during the conference that it is expecting a gradual increasing EBITDA moving forward. It also plans to reduce its leverage mostly through increasing the denominator. When asked about leverage, Mike Hennigan, CEO, offered, "we've been comfortable with our leverage . . . And we've been running around 4 times for some pretty consistent amount of time." MPLX isn't concerned about using surplus cash toward paying off debt.

The following slide provides a great summary of the quarter and year.

Considering all the circumstances, the company produced an exceptional quarter and year.

So What's On Management's Mind

With MPLX achieving cash neutrality plus, understanding managements concerns and direction is in our view, paramount. The analysts spoke up often during the Q&A directly hitting

This article was written by

Patient Tech Investor profile picture
I have been an investor for several decades enduring the 87 crash, 2000 crash, and 08 crash. I do use trading systems developed with TradeStation. I have enjoyed the rewards from both buy and hold and trading. My professional experiences includes several decades as a process control engineer. I hold a JD from an eastern law school.

Analyst’s Disclosure: I am/we are long MPLX. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (53)

Sorry, I will never trust MPC "management" again as regards to MPLX unit holders! Try WMB corporation focusing on n.g. if you want a high yielding long term pipeline play!
Patient Tech Investor profile picture
@Coast Patrol we al have our opinion don’t we.
@Patient Tech Investor So true, and mine is based on history and fact. Their Strategic Review of over a year of "what to do with MPLX" did nothing more than drive the price way down; then Corvid struck. Yes it has bounced, but MPC will rape the MPLXers sooner or later as they have already demonstrated! Guess I have two "opinions"! Think you have more judging from your terse response!
Patient Tech Investor profile picture
@Coast Patrol if I was terse my sincere apology. Take care
We have a substantial investment in MPLX as part of our estate planning. Our thinking is that we collect the distributions which are return of capital and basically tax free. Our basis is being lowered each year but not an issue until the stock is sold. Capital gains tax might be significant if we sold the units after holding for a long period but if we pass the units to our heirs, their basis will be what the price is at the time of our passing. My wife has done taxes for several decades and she believes this to be a sound strategy. Maybe we are wrong.
houtex profile picture
Remember that if your basis is zero the distributions are taxed as capital gains. And if you do sell you will recognize a bunch of ordinary income (offset by any accumulated passive losses you can use when you exit the position), which can happen if MPLX is bought out or merged for common stock, such as if MPC buys out the public LPs.
elliot_mllr profile picture
@bullshipper :
That is the current law, but it may not last. The Biden tax plan calls for eliminating the step up in basis on death (although assets would presumably still be valued at current market for inclusion in one's taxable estate). And the amount of capital gain might push one into a bracket (not yet established--during his campaign Biden said $400,000 but I have seen more recent proposals at $200,000) at which capital gains are taxed as ordinary income, and Biden proposes that the top ordinary income rate will be increased to 39.6%.
Also, as houtex points out, depreciation recapture, even after the release of suspended passive activity losses, will also be taxed as ordinary income and may push you into the higher bracket at which capital gains are taxed as ordinary income.
Beware these Biden Administration proposals and Congressional adoption of them.
Elliot Miller
CincinnatiRick profile picture
@bullshipper "if we pass the units to our heirs, their basis will be what the price is at the time of our passing"

Beware: the step up in basis is high up on the progressive hit list...a key target of the movement to curb the inter-generational transfer of wealth. While it might take a perfect alignment of the (political) planets, never say never. Joe Manchin, with his finger in the dyke, may not be the deciding vote after 2022.
I'd be happier with my Mark West back. I am in Pittsburgh and remember what MPC did to X.
Abandoned campaign promise, who could have predicted?
Patient Tech Investor profile picture
@leestebbins1957 so honest of a campaign, so honest of an election. Hard to believe isn't.
Eye wink!
elliot_mllr profile picture
Patient Tech Investor:
MPLX is a partnership, not a corporation. Its equity in in partnership units, nit in stock. It does not pay dividends. As a pass through entity, MPLX pays distributions and allocates partnership losses and earnings and profits subject to Code section 199A. The differences between shares of stock and partnership units, and between corporate dividends and partnership distributions, is very meaningful under the tax law.
Elliot Miller
Patient Tech Investor profile picture
@elliot_mllr thank you my accountant worries about those issues.

AM isn’t officially dividends either but because all the key sites call theirs and everyone else’s distribution dividends, NAS etc. I list the payments that way. I don’t know how else to keep it simple. Capital distribution dividend etc I just lump into one name.

I guess to add more clarity I should state that issue in my disclosure. Something like this “ it’s up to the investors to determine the actual legal type and description of the distribution.”

I just don’t have time to sit down and figure those issues out in detail. An article like the one posted above is usually 16-20 hours of work to figure out write etc. I try to keep language etc to the simplest possible. But yes you are correct and thanks for the note.

houtex profile picture
@Patient Tech Investor
Yeah, it isn’t as simple as “distributions” or “dividends” as partnerships can be elected to be taxed as corporations. So everything they do will be called “distributions” but that’s not what they are when it comes to tax time. Honestly, people should just be given a little heads up about “this is a partnership for tax — you get a K-1” or “this is a corporation for tax — you don’t get a K-1” and then people can say dividends and shares to their heart’s content. It’s all a bit tiresome.
Patient Tech Investor profile picture
@houtex True thanks I will try to include this type of comment
When a stock's yield goes down because the stock's price goes up that is what investors want. To imply that a decline in yield due to price appreciation and improved operating results which it sounds like you are saying is not such a negative thing that is worth writing about.
Patient Tech Investor profile picture
@dennis rfm not sure what you are asking. Management wasn’t happy at all at the valuation the market was placing on its business. To keep it simple. They want a higher price at a constant divy. Until that happens they have little desire to use the cash to pay more to shareholders. Does that help and maybe I could have said that point differently. Take care,

@Patient Tech Investor It is up to management to improve the perception of the stock so it will go up. They can do it best by increasing earnings and cash flow. Then they can raise the dividend and maybe do some of the other things. People buy MLP's primarily for income. I am pretty sure that most investors would prefer higher dividends than debt repayments or stock buy backs.
Patient Tech Investor profile picture
@dennis rfm we all would absolutely but that won’t happen until the yield drops first. Pretty clear. But I think that is ending soon if not already so.
AK_Werner profile picture
Thanks for your thoughts about MLPX @Patient Tech Investor, I'm long since around 16,90 and I'm positive for mid/long term due to stock repurchasing and the increasing financial health. Even if I'm taxed with 37,6% (I'm German) it's a great distribution/dividend rate in my eyes. Maybe I should file a tax return to have taxing decreased to 10%, but I don't know yet if this effort is worth the $$ I get refunded. Do you know anyone that aready filed a tax return as a non-resident alien and maybe could assist with properly filling the forms?
@AK_Werner Well, I'm taxed 37% as well, I'm from Lithuania, but can't understand why. I read that foreigners are taxed 15%, not 37%.
AK_Werner profile picture
@Osvaldas31 foreigners are taxed 15% on dividends (default withholding tax). MPLX as limited partnership pays no dividends but distributions, and these are taxed as income with 37,6% by the IRS. You could then file a tax return, because on income up to about 9500$ you only pay 10% income tax, and up to 38700$ you pay 12%. And, at least in Germany, you don't pay any further taxes on this distributions. Just check if the return you would get justifies the effort to file a US tax return.
@AK_Werner Do you have any link, where I could find info, how to file a tax return? I would appreciate that :)
@Patient Tech Investor Thank u Sir! Love this stock. I don’t see how we can survive without the use of oil and NG unless we think the power plants can generate electricity by burning leaves.
Only Dividend profile picture
@KittyKat Klean

They will have to burn the excess reefer, hemp, and cbd from liberal policies....hah
Terrianne profile picture
My thoughts are that if corporations are taxed higher to pay for COVID related economics, income-chasing investors will rush to MLPs?
@Terrianne You are right but it hasn't happened yet. Also, the higher the corporate tax rate goes the more MLPs are advantaged as they do not pay corporate taxes.
houtex profile picture
Keep in mind that one plank of the new tax platform is to eliminate “tax breaks” for fossil fuels, and Section 7704 allowing energy companies to bypass the requirement to be a corporation imposed on other publicly traded companies, is definitely a tax break (hence your comment).
I personally don’t suspect that will change, but I haven’t seen any promises that it won’t.
Patient Tech Investor profile picture
@Terrianne Excellent point. Didn’t consider that one. Thanks, Mark
Thanks Mark - love to read your thoughts on another of my favorite holdings....
Patient Tech Investor profile picture
@robriordan welcome. This one took awhile to write. Thanks Rob
Well thought out article. Long MPLX, and DRIPing. Hard to beat compounding 10%!
horowitzcpa profile picture
@Patient Tech Investor thanks for the informative update. I’d prefer to call the “dividend” a distribution since it could have an entirely different meaning come tax time vs a qualified dividend. Myself, I keep my MLP’s in a SEP-IRA, paying particular attention to keeping UBTI less than $1,000 annually. Turns that 10% yield into a tax-free distribution!! Thanks again
@horowitzcpa It's already a (nearly) tax free distribution if you hold it in a taxable account. Do you hold tax free munis in your IRA also?
horowitzcpa profile picture
@BPaone323 good point. No, of course not!
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