The stock of Magellan Midstream Partners LP (NYSE:MMP, 30-year Financials) is believed to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $49.08 per share and the market cap of $11 billion, Magellan Midstream Partners LP stock is estimated to be fairly valued. GF Value for Magellan Midstream Partners LP is shown in the chart below.
Because Magellan Midstream Partners LP is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Magellan Midstream Partners LP has a cash-to-debt ratio of 0.00, which which ranks in the bottom 10% of the companies in Oil & Gas industry. The overall financial strength of Magellan Midstream Partners LP is 3 out of 10, which indicates that the financial strength of Magellan Midstream Partners LP is poor. This is the debt and cash of Magellan Midstream Partners LP over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Magellan Midstream Partners LP has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $2.3 billion and earnings of $3.34 a share. Its operating margin of 36.34% better than 91% of the companies in Oil & Gas industry. Overall, GuruFocus ranks Magellan Midstream Partners LP's profitability as strong. This is the revenue and net income of Magellan Midstream Partners LP over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Magellan Midstream Partners LP is -0.7%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is 1.4%, which ranks in the middle range of the companies in Oil & Gas industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Magellan Midstream Partners LP's return on invested capital is 10.31, and its cost of capital is 7.20. The historical ROIC vs WACC comparison of Magellan Midstream Partners LP is shown below:
In summary, The stock of Magellan Midstream Partners LP (NYSE:MMP, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Magellan Midstream Partners LP stock, you can check out its 30-year Financials here.
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