BUSINESS
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; gathering, storage, transportation, and distribution of crude oil and refined products, as well as other hydrocarbon-based products; and sale of residue gas and condensate.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, MPLX is expected to continue to be a major Value Builder.
MPLX has a current Value Trend Rating of B (Positive).
The Value Trend Rating reflects inconsistent signals from PTR’s two proprietary measures of a stock’s attractiveness. MPLX has a neutral Appreciation Score of 50 but a good Power Rating of 77, leading to the Positive Value Trend Rating.
MPLX’s stock is selling well below targeted value. The current stock price of $41.56 compares to targeted value 12 months forward of $55.
This neutral appreciation potential results in an appreciation score of 50 (50% of the universe has greater appreciation potential.)
MPLX has a Power Rating of 77. (MPLX’s good Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 23% of companies in the universe.)
Factors contributing to this good Power Rating include: the Pipe Lines, Excluding Natural Gas comparison group is in a strong phase currently; recent price action has been favorable; and earnings estimate behavior for MPLX has been slightly favorable recently.
INVESTMENT PROFILE
MPLX LP’s financial strength is above average. Financial strength rating is 68.
Relative to the S&P 500 Composite, MPLX LP has both Growth and Value characteristics; its appeal is likely to be to Income-oriented investors; the perception is that MPLX is higher risk. Relative weaknesses include: low historical profitability, high stock price volatility, high financial leverage, and low expected growth. MPLX LP’s valuation is low: high dividend yield, low P/E ratio, and moderate price/book ratio. MPLX has normal market capitalization.
CURRENT SIGNALS
MPLX’s current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; rising tax keep rate; and rising leverage.
MPLX’s current technical position is very strong. The stock price is in a 21.5 month up move. The stock has appreciated 43.5% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
The stock is currently rated B.
MPLX LP (NYSE: MPLX) stock closed at $41.56 on 3/28/24 after a modest gain of 0.6%. However, normal trading volume at 83% of normal accompanied the advance. The stock has risen 2.6% during the last week and has been strong relative to the market over the last nine months.
CASH FLOW
In 2023, MPLX LP generated a very significant increase in cash of +$810 million (+340%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$5,437 million. Non-operating sources contributed +$645 million (+12% of EBITDA). Cash taxes consumed -$8 million (-0% of EBITDA). Re-investment in the business amounted to -$1,091 million (-20% of EBITDA). On a net basis, debt investors pulled out -$317 million (-6% of EBITDA) while equity investors withdrew -$3,856 million (-71% of EBITDA).
MPLX LP’s Non-operating Income, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Mplx Lp Peer Group. (Since 2020 Non-operating Income, %EBITDA has accelerated very sharply.) In most years, MPLX LP was in the second quartile and third quartile. Currently, MPLX LP is upper quartile at +12% of EBITDA (+$645 million).
MPLX LP’s Cash Taxes, %EBITDA experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Mplx Lp Peer Group. (Since 2018 Cash Taxes, %EBITDA has recently stabilized.) In most years, MPLX LP was in the second quartile and top quartile. Currently, MPLX LP is at the upper quartile at -0% of EBITDA (-$8 million).
MPLX LP’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Mplx Lp Peer Group. In most years, MPLX LP was in the top quartile and lower quartile. Currently, MPLX LP is upper quartile at -20% of EBITDA (-$1,091 million).
MPLX LP’s Debt Investors, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Mplx Lp Peer Group. In most years, MPLX LP was in the top quartile and second quartile. Currently, MPLX LP is substantially below median at -6% of EBITDA (-$317 million).
MPLX LP’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Mplx Lp Peer Group. In most years, MPLX LP was in the lower quartile and top quartile. Currently, MPLX LP is lower quartile at -71% of EBITDA (-$3,856 million).
MPLX LP’s Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Mplx Lp Peer Group. (Since 2021 Change in Cash, %EBITDA has sharply accelerated.) In most years, MPLX LP was in the second quartile and top quartile. Currently, MPLX LP is above median at +15% of EBITDA (+$810 million).
MPLX LP’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by a downtrend for the Mplx Lp Peer Group. (Since 2021 Cash, %Revenue has experienced very sharp improvement.) In most years, MPLX LP was in the lower quartile. Currently, MPLX LP is at the lower quartile at +10%.
PROFITABILITY
MPLX LP’s return on equity has improved very significantly since 2014. The current level is 31.5% versus the high of 26.5% and the low of -5.9%.
This very significant improvement was due to very strong positive trend in pretax operating return and very minor positive trend in non-operating factors.
The productivity of MPLX LP’s assets rose over the full period 2014-2023: asset turnover has enjoyed a volatile overall uptrend.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2020 level.
Non-operating factors (income taxes and financial leverage) had a very small positive influence on return on equity.
MPLX LP’s return on equity is upper quartile (31.5%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is upper quartile (10.9%) reflecting asset turnover that is at the upper quartile (0.29X) and pretax margin at the upper quartile (37.6%).
Tax “keep” rate (income tax management) is at the upper quartile (98.8%) resulting in after tax return on assets that is upper quartile.
Financial leverage (leverage) is slightly above median (2.93X).
GROWTH RATES
Overall, MPLX LP’s growth rate has slowed considerably in recent years.
MPLX LP’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 9.0% per year. (More recently it has been 4.1%.)
Total asset growth has been 1.6% per year.
Annual E.P.S. growth has been 12.6% per year.
Equity growth has been -3.2% per year. (More recently it has been 3.9%.)
MPLX LP’s consensus growth rate forecast (average of Wall Street analysts) is 4.0% — in line with the average of the historical growth measures.
Relative to the Mplx Lp Peer Group, MPLX LP’s historical growth measures are erratic. Revenue growth (9.0%) has been upper quartile. E.P.S. growth (12.6%) has been upper quartile. Total asset growth (1.6%) has been at median. Equity growth (-3.2%) has been substantially below median.
Consensus growth forecast (4.0%) is lower quartile.
PRICE HISTORY
Over the full time period, MPLX LP’s stock price performance has been significantly below market. Between May, 2013 and March, 2024, MPLX LP’s stock price rose +12%; relative to the market, this was a -65% loss. Significant price moves during the period: 1) September, 2020 – March, 2024: +164%; 2) January, 2017 – March, 2020: -69%; 3) February, 2015 – February, 2016: -68%; and 4) August, 2013 – February, 2015: +130%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 21.4% is above median relative to the S&P 500 Composite.
In addition to being above median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 21.4% is at median relative to MPLX LP Peer Group.
Current 5-year total return performance of 14.5% is above median relative to the S&P 500 Composite.
Through February, 2024, with above median current 5-year total return of 14.5% relative to S&P 500 Composite, MPLX LP’s total return performance is at the upper quartile relative to MPLX LP Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, MPLX’s overall valuation is normal. The highest factor, the ratio of enterprise value/revenue, is near the upper quartile. Ratio of enterprise value/assets is slightly above median. Price/equity ratio is slightly above median. Ratio of enterprise value/earnings before interest and taxes is lower quartile. The lowest factor, the price/earnings ratio, is lower quartile.
Relative to MPLX LP Peer Group, MPLX’s overall valuation is high. The highest factor, the price/equity ratio, is upper quartile. Ratio of enterprise value/assets is upper quartile. Ratio of enterprise value/revenue is at the upper quartile. Ratio of enterprise value/earnings before interest and taxes is at median. The lowest factor, the price/earnings ratio, is below median.
MPLX LP has a large value gap compared to the median valuation. For MPLX to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 5.94X to 5.20X. If MPLX’s ratio of enterprise value/revenue were to fall to 5.20X, its stock price would be lower by $-8 to $34.
For MPLX to fall to lower quartile valuation relative to the MPLX LP Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 5.94X to 4.33X. If MPLX’s ratio of enterprise value/revenue were to fall to 4.33X, its stock price would decline by $-17 from the current level of $42.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, MPLX is expected to continue to be a major Value Builder.
MPLX LP’s current Price Target of $55 represents a +32% change from the current price of $41.56.
This neutral appreciation potential results in an appreciation score of 50 (50% of the universe has greater appreciation potential.)
With this neutral Appreciation Score of 50, the high Power Rating of 77 results in an Value Trend Rating of B.
MPLX LP’s current Price Target is $55 (+10% from the 2023 Target of $50 and +32% from the 03/28/24 price of $41.56). This slight rise in the Target is the result of a +4% increase in the equity base and a +6% increase in the price/equity multiple. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple and the forecasted decline in cost of equity has a very slight positive impact as well. Partially offsetting these Drivers, the forecasted decline in growth has a large negative impact.
PTR’s return on equity forecast is 33.2% — above our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2016 low of 4%.
PTR’s growth forecast is 4.0% — slightly below our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly below the 2019 peak of 22%.
PTR’s cost of equity forecast is 12.5% — in line with recent levels. Forecasted cost of equity suffered a dramatic, variable increase between 2015 and 2023. The current forecast is well above the 2016 low of 3.8%.
At MPLX LP’s current price of $41.56, investors are placing a positive value of $11 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 7.0% per year, and a return on equity of 27.9% versus a cost of equity of 12.8%.
PTR’s 2025 Price Target of $55 is based on these forecasts and reflects an estimated value of existing assets of $35 and a value of future investments of $20.
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