We came across a bullish thesis on MPLX LP (MPLX) on ValueInvestorsClub by inflection99. In this article we will summarize the bulls’ thesis on MPLX. MPLX shares were trading at $40.81 when this thesis was published, vs. closing price of $44.05 on Sep 18.
An aerial view of the energy producing facility, highlighting its potential of providing utilities to the public.
MPLX LP is a prominent player in the midstream energy sector, established by Marathon Petroleum Corporation (MPC) in 2012. This master limited partnership specializes in owning and operating a diverse range of midstream infrastructure assets, focusing on the transportation, storage, and processing of natural gas and oil products. What sets MPLX apart in its industry is its strategic relationship with MPC, which not only serves as a major customer but also provides the potential for asset dropdowns. This connection ensures stable revenue through long-term fee-based contracts, making MPLX an attractive option for investors seeking reliable income.
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MPLX’s revenue streams primarily come from its Logistics and Storage (L&S) and Gathering and Processing (G&P) segments. The L&S segment is involved in the gathering, transportation, and storage of crude oil and refined products through an extensive network of pipelines, terminals, and storage facilities. Meanwhile, the G&P segment focuses on natural gas, processing it to remove impurities and market natural gas liquids (NGLs). The company’s operations are strategically located in prolific energy-producing regions such as the Permian Basin and Marcellus/Utica Shale, positioning it to capitalize on the increasing demand for energy transportation and processing.
The potential for growth in MPLX is significant, particularly as the demand for natural gas and NGLs rises. The company has invested heavily in expanding its capabilities, with a focus on processing and transporting natural gas, which is crucial as the energy sector shifts toward cleaner fuels. Moreover, MPLX’s robust financial health, characterized by an investment-grade credit rating and a strong balance sheet, supports its commitment to growing distributions for unitholders.
In recent months, MPLX has demonstrated impressive financial performance, with EBITDA growth of 8% year-over-year and a commitment to returning capital to its investors through increasing distributions and share buybacks. The company has consistently raised its quarterly distribution, signaling confidence in its cash flow generation and operational stability. As it continues to pursue accretive acquisitions and maintain disciplined capital allocation, MPLX is well-positioned for sustained growth.
Investors can expect a strong total return potential from MPLX, with projected dividend yields around 9% and opportunities for capital appreciation. If MPLX trades at a 7% dividend yield in the coming years, this could imply a 50% increase in capital value, coupled with several years of healthy dividend income, resulting in an estimated total return of up to 75%.
In conclusion, MPLX LP offers a compelling investment opportunity characterized by its unique position in the midstream energy sector, strong operational performance, and commitment to growth. Its strategic ties with Marathon Petroleum and focus on high-demand markets such as natural gas place it in a favorable position to capitalize on ongoing energy trends. For those seeking a blend of income and growth potential, MPLX presents an attractive option, particularly in a market where reliable returns are increasingly sought after. Investing in MPLX means participating in a well-established company with a proven track record and significant growth prospects, making it a worthy addition to any investment portfolio.
MPLX is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 8 hedge fund portfolios held MPLX at the end of the second quarter which was 9 in the previous quarter. While we acknowledge the potential of MPLX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as MPLX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.