Magellan Midstream Partners (NYSE:MMP) is little changed in Thursday's trading even after Goldman Sachs upgraded shares to Buy from Neutral with a $59 price target, seeing the MLP as a beneficiary of elevated inflation, which drives higher refined products system pricing levels.
Goldman analyst Michael Lapides notes ~30% of Magellan Midstream's (MMP) refined products system re-prices its tariffs based on an indexation methodology, that uses prior-year inflation levels for the Producer Price Index for Finished Goods.
With PPI-FG at ~14% YTD, Lapides expects upward pressure on 2023's midyear revenue increase for Magellan's (MMP) refined products segment, which accounts for 70% of total estimated 2023 EBITDA.
"While headwinds still remain for the crude oil pipeline segment, on valuation we see MMP units trading at a lower premium to large-cap MLP peers vs. history," Lapides writes, seeing an attractive entry point for Magellan (MMP), which offers an 8% dividend yield.
Magellan Midstream (MMP) recently was upgraded at J.P. Morgan, also citing strength in an inflationary environment.