Magellan Midstream raised at Goldman as inflation beneficiary

Jun. 09, 2022 2:58 PM ETMagellan Midstream Partners, L.P. (MMP)By: Carl Surran, SA News Editor6 Comments

steel long pipes in crude oil factory during sunset

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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.

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