The stock of Magellan Midstream Partners LP (NYSE:MMP, 30-year Financials) appears 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 $50.02 per share and the market cap of $11.2 billion, Magellan Midstream Partners LP stock gives every indication of being 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 one of the most important factors 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. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Magellan Midstream Partners LP’s 3-year average revenue growth rate is in the middle range of the companies in Oil & Gas industry. Magellan Midstream Partners LP’s 3-year average EBITDA growth rate is 1.4%, which ranks in the middle range of the companies in Oil & Gas industry.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Magellan Midstream Partners LP’s ROIC is 10.31 while its WACC came in at 7.11. 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) gives every indication of being 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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