MPLX: Buy This Consistent Grower (NYSE:MPLX)

Again in late April, I wrote that MPLX (NYSE:MPLX) deserved a spot within the portfolio of income-oriented traders. Since that point, the inventory hasn’t executed a lot. Let’s catch-up on the title to see if something has modified.

Firm Profile

As a reminder, MPLX is a diversified midstream operator whose mother or father firm is Marathon Petroleum (MPC). The refiner owns about 65% of the corporate and accounted for slightly below 50% of its income final yr.

MPLX operates in two segments. Its Logistics & Storage phase accounts for about two-thirds of EBITDA and is concerned within the gathering, transport, storage and distribution of crude, refined merchandise, different hydrocarbons, and renewables. Contracts inside the phase are sometimes long-term fee-based preparations with minimal quantity commitments.

The MLP’s Gathering & Processing, in the meantime, is concerned within the gathering, processing, fractionation, storage of pure gasoline and NGLs. The phase’s contracts are a combination of fee-based, percent-of-proceeds, and keep-whole agreements.

The Consistency Continues

The one factor I actually like about MPLX is how constant the corporate has been all through the years. In contrast to some midstream corporations, MPLX by no means discovered itself overleveraged and having to chop its distribution when issues grew to become harder within the power patch. In truth, it’s been in a position to submit regular outcomes and steadily develop its distribution through the years.

The corporate’s Q1 outcomes confirmed this development continues, with its adjusted EBITDA up 9% yr over yr to $1.52 billion, whereas its distributable money circulate was up 5% yr over yr to $1.27 billion. The constant development over the previous yr may be seen its EBITDA and DCF numbers under. They could not rise every quarter sequentially, however there’s a regular development of development.

MPLX’s Logistics & Storage Phase is a rock. Given the phase’s contract constructions and ties to its mother or father MPC, the phase is only a regular grower. It noticed its EBITDA climb 13.5% in Q1 to $1.026 billion. Volumes elevated all through the phase, with crude pipeline throughput up 8%, terminal throughput rose 5%, and product pipeline volumes had been up 2%. Tariffs additionally elevated 1% to 90 cents a barrel.

The corporate’s future development on this phase is being pushed by debottling and growth tasks, significantly within the Permian. As many power traders are conscious, there are pure gasoline takeaway points within the Permian. By a JV, MPLX is a part of the Whistler pure gasoline pipeline venture that can assist with this subject. The venture is predicted to be accomplished in September. Notably, this venture and different Permian tasks are being financed on the JV stage and never included in its $800 million in development CapEx it’ll spend this yr.

Whereas the L&S phase is regular, the smaller G&P phase does carry extra danger. The phase is essentially fee-based, but it surely does have some NGL worth publicity that may influence its outcomes. That influence was felt in Q1, as the corporate noticed a -$40 million influence from NGL costs in comparison with yr in the past, as NGL costs per gallon averaged 77 cents versus $1.15 a yr in the past. A 5-cents per gallon transfer in NGL costs has a couple of $20 million annual influence on its outcomes. NGL costs have a tendency to trace crude worth actions, though they’ll deviate.

The larger danger to the phase is volumes, particularly given its property within the Marcellus, which is the biggest basin its G&P phase serves. Pure gasoline costs have nosedived from their highs final yr, which might influence volumes coming from pure-play pure gasoline basins. Nonetheless, as mentioned in my seems at numerous Marcellus producers, the basin is low price and producers there are in a position to nonetheless modestly improve manufacturing. E&Ps like Antero (AR), in the meantime, have a variety of liquid wealthy gasoline and any shift from dry gasoline to moist gasoline tends to be good for MPLX.

Discussing the matter on its Q1 earnings name, COO Greg Floerke stated:

“Our largest space, which is Appalachia, significantly Marcellus, is likely one of the lowest price manufacturing basin. So in case you have a look at the macro drivers for what determines exercise, the manufacturing price stage versus gasoline worth, the quantity of agency transportation capability commitments by numerous producers after which hedging exercise. And I believe significantly within the Marcellus, the containers are verify there for a lot of the producers. If there’s one factor we see, it is most likely a shift — the potential for a shift from lean gasoline, non-processable gasoline into wealthy gasoline basins. Undoubtedly, in case you rank the basins, the crude basins are clearly probably the most enticing with good crude pricing ranges versus gasoline. And that exercise goes to proceed whatever the pure gasoline costs.”

And G&P volumes in truth had been robust for MPLX in Q1. Gathered volumes rose 21% within the quarter, and had been up 4% within the Marcellus. Fractionated volumes, in the meantime, had been up 14% within the Marcellus, exhibiting that shift to moist gasoline.

MPLX continues to progress on development tasks in its G&P phase as nicely. It added a 5^th processing plant within the Permian in This fall, and has crops in each the Permian and Marcellus anticipated to return on-line within the first half of 2024. This extra capability ought to proceed to drive development within the coming years as nicely.

Valuation

Taking a look at valuation, MPLX trades at 8.6x the 2023 EBITDA consensus of $6.0 billion. For 2024, it trades at 8.4x the 2024 EBITDA consensus of $6.15 billion.

It has a free money circulate yield of 11.8%.

The inventory trades within the center vary of valuation in comparison with its midstream friends.

I imagine the midstream area is undervalued as a complete. Earlier than Covid, midstream operators can be valued round 12x within the personal markets and over 10x within the public markets. Return even additional, and their valuations had been even increased. In the present day, most of those corporations are in higher monetary form with stronger steadiness sheets and no IDRs. Nonetheless, they commerce at decrease valuations than they did a number of years in the past, so I believe there’s a good alternative is the area.

Conclusion

With its Q1 outcomes, I believe MPLX did a great job of answering any potential questions surrounding attainable headwinds. It shrugged off NGL worth headwinds and didn’t see any quantity influence from decrease pure gasoline costs. This provides me much more confidence within the title.

For my part, MPLX is a prime midstream operator to contemplate for income-oriented traders. It has a juicy distribution yield of over 9% that’s nicely lined (1.6x final quarter) and which the corporate has been in a position to persistently develop. As well as, its steadiness sheet is powerful (3.5x leverage), it generates robust free money circulate ($1 billion final quarter), and it nonetheless has a robust backlog of development tasks.

MPLX stays a “Purchase” in my ebook, and could also be much more enticing immediately than after I first wrote about it.