MPLX LP (MPLX), a subsidiary of industry-leading crude oil refiner Marathon Petroleum Corp (MPC), is a midstream fee-based Master Limited Partnership (MLP) that owns and operates assets for the transportation and storage of crude oil, refined products and other hydrocarbon-based products.
MPLX EBITDA could more than double relative to its $1.3 billion level for 2016—as Marathon expands its gathering and processing (G&P) operations in the Marcellus and Utica shales. This upside is not priced into units, which have been battered by falling energy industry outlook, a weak 4Q15 earnings report and a drop in distributions. Moreover, with long-term fee-based contracts with its sponsor and other parties, MPLX has low exposure to commodity price volatility, and could see distributions increase by 11% annually through 2018, a growth rate that is well above the 5% median growth projected for the MLP sector as a whole.
As a result, MPLX units trade at a significant discount, with negativity already priced into the units—which presents an attractive entry point for investors. As oil prices stabilize and as the energy sector gets comfortable with lower priced oil, MPLX units should rebound on distribution growth—offering capital appreciation and dividend growth as dual incentives for unitholders.
MPLX recently paid a fourth quarter distribution of $0.50 per unit ($2.00 annualized) on February 12, 2016. The distribution represents a quarter-over-quarter increase of 6% and a year-over-year increase of 31%. MPLX has a realistic 1-year average consensus analyst price target of $34, which gives investors upside of 33%. Combine this with distribution growth and MPLX becomes a smart play for current income and long-term capital gains.
Todd Johnson, Dividend Lab, www.dividendlab.com, 505-514-0036, February 29, 2016