MPLX - MPLX: 9% Yield More Strong Earnings

2024-01-19 09:15:00 ET

Summary

• MPLX LP is a diversified, large-cap master limited partnership that owns and operates midstream energy infrastructure and logistics assets.
• In Q3 2023, MPLX had record EBITDA, up 8.5%, and DCF, up 9.5%.
• MPLX has a dividend yield of 9.21% and has outperformed the broad energy sector and the S&P over the past month.

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Ohio-based MPLX LP ( MPLX ) has been in this industry since 2012.

MPLX LP is a diversified, large-cap master limited partnership formed by Marathon Petroleum Corporation ( MPC ) that owns and operates midstream energy infrastructure and logistics assets, and provides fuels distribution services.

Company Profile:

MPLX LP owns and operates midstream energy infrastructure and logistics assets primarily in the United States. It operates in two segments, Logistics and Storage, and Gathering and Processing.

The company is involved in the gathering, processing, and transportation of natural gas; gathering, transportation, fractionation, exchange, storage, and marketing of natural gas liquids; transportation, storage, distribution, and marketing of crude oil and refined petroleum products, as well as other hydrocarbon-based products; and sale of residue gas and condensate. (MPLX site)

Earnings:

Q3 2023: MPLX's two main segments are Gathering & Processing and Logistics & Storage. The G&P segment's Adjusted EBITDA was roughly flat in Q3 '23, at $505M, vs. $502M in Q3 '22.

Higher volumes and throughput fees were offset by lower natural gas liquids prices. Within the Marcellus basin, gathering volumes rose 4%, processing rose 5%, and fractionation rose 10%.

The Logistics & Storage segment had a healthy 12.6% rise in adjusted EBITDA - it rose to $1.09B, vs. $969M in Q3 '22, due to higher rates, growth from equity affiliates, and higher total throughput volume.

While revenues fell 14% in the quarter, EBITDA and DCF both had good growth, hitting record amounts, which enabled management to raise the quarterly distribution by 9.7%, from $.775 to $.85.

Net income was down 35% due to a $509M non-cash gain on a lease reclassification in Q3 '22. Interest expense was roughly stable, up 2.8%.

MPLX generated $1,244M in net cash provided by operating activities, and returned $799M unitholders in Q3 '23.

Distribution remained solid, at 1.6X.

Q1-3 '23: Revenues were down by 7%, with net income impacted by the aforementioned non-cash charge. EBITDA and DCF both rose over 7%, while distributions rose 9.8%. Like most other companies, MPLX had higher Interest expenses, which were up 7.3%.

MPLX generated $3,908 million in net cash provided by operating activities in Q1-3 '23.

Management has been able to grow DCF at ~7% clip since 2019. "MPLX is a strategic investment for MPC, which now expects to receive $2.2 billion in annual cash flows via the distribution. MPC believes that its current capital allocation priorities are optimal for its shareholders and MPC does not plan to roll up MPLX" (Q3 call ).

Dividends:

At its 1/18/24 closing price of $36.92, MPLX yields 9.21%. It has a five-year distribution growth rate of 4.69%. It should go ex-dividend on ~2/2/24, with a ~2/14/24 pay date.

MPLX also has a unit buyback program - however, no units were repurchased during the three or nine months ended Sept. 30, 2023. As of Sept. 30, 2023, there was $846 million remaining under the unit repurchase authorization.

Taxes:

MPLX's 2023 K-1 forms should be available to unit holders as of 3/15/24.

Growth Projects:

L&S segment: MPLX is expanding its natural gas and natural gas liquids long-haul and crude gathering pipelines supporting the Permian and Bakken basins. The Whistler pipeline expansion was completed at the end of Q3 '23.

The Agua Dulce Corpus Christi Pipeline lateral is expected to be in service in Q3 2024. MPLX also is progressing its natural gas liquids strategy with the expansion of the BANGL JV pipeline to a capacity of 200K bpd, with expected completion in the first half of 2025.

G&P segment: Responding to producer demand, MPLX is continuing construction of its sixth natural gas processing plant, Preakness ll, in the Permian's Delaware basin, which is expected online in Q1-2 2024. MPLX is also planning to build Secretariat, its 7th processing plant in the basin, which is expected online in Q3-4 2025.

Construction continues on the Marcellus Harmon Creek ll processing plant, which is expected online in Q1-2 2024.

Profitability and Leverage:

While ROA and ROE were lower than in Q1 '23, both remained above midstream industry averages, as did the EBITDA Margin. Debt/equity, net debt/EBITDA and interest coverage were all steady and better than industry averages.

As we've seen at other midstream firms, MPLX's management has focused on deleveraging the company over the past few years:

Debt and Liquidity:

MPLX’s credit agreement matures in July 2027 and provides for a $2 billion unsecured revolving credit facility and letter of credit issuing capacity under the facility of up to $150 million.

MPLX’s senior notes consist of various series of senior notes maturing between 2024 and 2058 with interest rates ranging from 1.75% to 5.65%.

MPLX appointed a new CFO, C. Kristopher Hagedorn, in December, effective 1/1/24.

Performance:

While MPLX has lagged the midstream industry, the industry's performance stats were impacted by outsized three-digit gains from two stocks. Excluding those two outliers, the midstream industry had a one-year ~total return of 18.73%, vs. ~17% for MPLX.

MPLX has outperformed the broad energy sector, and has also outperformed the S&P over the past month.

Analysts' Price Targets:

At $36.92, MPLX was 9.6% below analysts' $40.84 average price target, and 18% below their highest target of $45.00. Its most recent rating was a Buy rating from Goldman Sachs in October '23, with a $40.00 target.

Valuations:

MPLX looks fairly valued when compared to midstream average valuations - while its EV/EBITDA is much lower, its P/book and price/DCF are both roughly in line with industry averages, and its P/sales is higher than average. The big difference is its much more attractive dividend yield of over 9%, vs. to ~6% average industry yield.

Parting Thoughts:

We've owned MPLX in the past, and wouldn't mind nibbling on new units again, but at a lower valuation. The company is well-managed, with good support for its attractive distributions, but it's currently less than 2% below its 52-week high, and looks overbought. MPLX will report its Q4 and full year 2023 earnings on January 30th. We rate MPLX a Hold.

All tables furnished by Hidden Dividend Stocks Plus, unless otherwise noted.

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