Morningstar | Magellan Reports Strong First Quarter, Boosts 2019 Forecast
Magellan reported a strong first quarter and boosted its 2019 distributable cash flow forecast to $1.18 billion from $1.14 billion, a $40 million increase. The higher forecast is due to ongoing wide differentials between the Permian Basin and Houston that are contributing to profitable spot market shipments on the BridgeTex and Longhorn pipelines. This revised forecast already matches our expectations, as management indicated last quarter that distributable cash flow for 2019 could be up to $1.2 billion depending on the sustainability of the differentials. We plan to maintain our $72 fair value estimate and wide moat rating.Distributable cash flow for the quarter was a record $318 million, up from $259 million in 2018, benefiting mainly from derivative adjustments related to its butane blending activities. The refined products segment benefited from the midyear tariff increase of 4.4% and reduced volumes transported on the low-rate South Texas pipelines. The crude segment saw improvements due to new storage and related services in connection with the Seabrook Logistics venture (a 50/50 joint venture with LBC Tank Terminals to pursue crude oil exports), which was offset by lower tariffs due to more volumes being moved on the low-rate Houston distribution system and lower contracted rates on LongHorn. We broadly expect these trends to continue for the near term. Magellan also continues to make good progress on its capital project slate, with the Pasadena, Texas, marine terminal coming online in January, and the East Houston-to-Herne refined products pipeline on track to start up in August 2019.
Please see our research published in February 2019, "The U.S. Crude Export Boom and the Midstream Opportunity," for more on our crude oil exports forecast.
Magellan Midstream Partners is engaged in the transportation, storage and distribution of refined petroleum products and crude oil. The company's segments are: refined products, which consists of its refined products pipeline system, independent terminals and ammonia pipeline system; crude oil, which comprises crude oil pipelines, condensate splitter and storage facilities and ships crude oil as a common carrier for customers including crude oil producers, end users such as refiners, and marketing and trading companies; and marine storage, which owns and operates marine storage terminals located along coastal waterways.
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