Intrinsic value of Magellan Midstream Partners - MMP

Previous Close

$64.84

  Intrinsic Value

$31.06

stock screener

  Rating & Target

str. sell

-52%

  Value-price divergence*

-55%

Previous close

$64.84

 
Intrinsic value

$31.06

 
Up/down potential

-52%

 
Rating

str. sell

 
Value-price divergence*

-55%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MMP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 14.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  0.78
  23.50
  21.65
  19.99
  18.49
  17.14
  15.92
  14.83
  13.85
  12.96
  12.17
  11.45
  10.81
  10.22
  9.70
  9.23
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
Revenue, $m
  2,205
  2,723
  3,313
  3,975
  4,710
  5,517
  6,395
  7,344
  8,361
  9,445
  10,594
  11,807
  13,083
  14,420
  15,819
  17,280
  18,802
  20,387
  22,035
  23,749
  25,529
  27,380
  29,303
  31,302
  33,381
  35,542
  37,792
  40,133
  42,571
  45,112
  47,761
Variable operating expenses, $m
 
  1,524
  1,852
  2,222
  2,631
  3,081
  3,571
  4,100
  4,667
  5,272
  5,912
  6,583
  7,295
  8,041
  8,821
  9,635
  10,484
  11,368
  12,287
  13,242
  14,235
  15,267
  16,339
  17,454
  18,613
  19,818
  21,072
  22,378
  23,738
  25,154
  26,631
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  1,270
  1,524
  1,852
  2,222
  2,631
  3,081
  3,571
  4,100
  4,667
  5,272
  5,912
  6,583
  7,295
  8,041
  8,821
  9,635
  10,484
  11,368
  12,287
  13,242
  14,235
  15,267
  16,339
  17,454
  18,613
  19,818
  21,072
  22,378
  23,738
  25,154
  26,631
Operating income, $m
  935
  1,199
  1,460
  1,753
  2,078
  2,435
  2,824
  3,244
  3,694
  4,173
  4,681
  5,223
  5,788
  6,380
  6,999
  7,645
  8,318
  9,019
  9,748
  10,506
  11,294
  12,113
  12,964
  13,848
  14,768
  15,724
  16,719
  17,755
  18,834
  19,958
  21,129
EBITDA, $m
  1,113
  1,422
  1,730
  2,076
  2,460
  2,881
  3,340
  3,836
  4,367
  4,933
  5,533
  6,167
  6,833
  7,532
  8,262
  9,025
  9,820
  10,648
  11,509
  12,404
  13,334
  14,301
  15,305
  16,349
  17,435
  18,564
  19,739
  20,961
  22,235
  23,562
  24,945
Interest expense (income), $m
  0
  143
  182
  226
  275
  330
  390
  455
  526
  601
  682
  767
  858
  953
  1,052
  1,156
  1,265
  1,378
  1,496
  1,619
  1,746
  1,879
  2,016
  2,159
  2,308
  2,463
  2,624
  2,791
  2,965
  3,147
  3,336
Earnings before tax, $m
  806
  1,056
  1,278
  1,527
  1,803
  2,106
  2,434
  2,789
  3,168
  3,572
  3,999
  4,456
  4,930
  5,427
  5,946
  6,488
  7,053
  7,641
  8,252
  8,888
  9,548
  10,234
  10,948
  11,689
  12,460
  13,261
  14,095
  14,964
  15,868
  16,811
  17,794
Tax expense, $m
  3
  285
  345
  412
  487
  569
  657
  753
  855
  964
  1,080
  1,203
  1,331
  1,465
  1,606
  1,752
  1,904
  2,063
  2,228
  2,400
  2,578
  2,763
  2,956
  3,156
  3,364
  3,581
  3,806
  4,040
  4,284
  4,539
  4,804
Net income, $m
  803
  771
  933
  1,115
  1,316
  1,537
  1,777
  2,036
  2,313
  2,607
  2,920
  3,253
  3,599
  3,962
  4,341
  4,737
  5,149
  5,578
  6,024
  6,488
  6,970
  7,471
  7,992
  8,533
  9,095
  9,681
  10,290
  10,924
  11,584
  12,272
  12,989

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  15
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  6,772
  8,353
  10,162
  12,193
  14,447
  16,922
  19,617
  22,527
  25,646
  28,971
  32,496
  36,217
  40,130
  44,234
  48,526
  53,006
  57,675
  62,536
  67,592
  72,848
  78,311
  83,988
  89,888
  96,020
  102,395
  109,026
  115,925
  123,107
  130,587
  138,380
  146,505
Adjusted assets (=assets-cash), $m
  6,757
  8,353
  10,162
  12,193
  14,447
  16,922
  19,617
  22,527
  25,646
  28,971
  32,496
  36,217
  40,130
  44,234
  48,526
  53,006
  57,675
  62,536
  67,592
  72,848
  78,311
  83,988
  89,888
  96,020
  102,395
  109,026
  115,925
  123,107
  130,587
  138,380
  146,505
Revenue / Adjusted assets
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
  0.326
Average production assets, $m
  5,075
  6,266
  7,623
  9,146
  10,837
  12,694
  14,715
  16,898
  19,238
  21,732
  24,376
  27,167
  30,103
  33,181
  36,400
  39,761
  43,263
  46,910
  50,702
  54,645
  58,743
  63,002
  67,427
  72,027
  76,809
  81,783
  86,958
  92,346
  97,956
  103,803
  109,897
Working capital, $m
  -112
  -158
  -192
  -231
  -273
  -320
  -371
  -426
  -485
  -548
  -614
  -685
  -759
  -836
  -918
  -1,002
  -1,091
  -1,182
  -1,278
  -1,377
  -1,481
  -1,588
  -1,700
  -1,816
  -1,936
  -2,061
  -2,192
  -2,328
  -2,469
  -2,616
  -2,770
Total debt, $m
  4,087
  5,196
  6,449
  7,856
  9,418
  11,134
  13,002
  15,018
  17,180
  19,484
  21,927
  24,505
  27,217
  30,061
  33,035
  36,140
  39,376
  42,744
  46,248
  49,891
  53,677
  57,611
  61,699
  65,949
  70,367
  74,962
  79,743
  84,720
  89,904
  95,305
  100,935
Total liabilities, $m
  4,680
  5,789
  7,042
  8,449
  10,011
  11,727
  13,595
  15,611
  17,773
  20,077
  22,520
  25,098
  27,810
  30,654
  33,628
  36,733
  39,969
  43,337
  46,841
  50,484
  54,270
  58,204
  62,292
  66,542
  70,960
  75,555
  80,336
  85,313
  90,497
  95,898
  101,528
Total equity, $m
  2,092
  2,564
  3,120
  3,743
  4,435
  5,195
  6,022
  6,916
  7,873
  8,894
  9,976
  11,119
  12,320
  13,580
  14,897
  16,273
  17,706
  19,198
  20,751
  22,364
  24,042
  25,784
  27,596
  29,478
  31,435
  33,471
  35,589
  37,794
  40,090
  42,483
  44,977
Total liabilities and equity, $m
  6,772
  8,353
  10,162
  12,192
  14,446
  16,922
  19,617
  22,527
  25,646
  28,971
  32,496
  36,217
  40,130
  44,234
  48,525
  53,006
  57,675
  62,535
  67,592
  72,848
  78,312
  83,988
  89,888
  96,020
  102,395
  109,026
  115,925
  123,107
  130,587
  138,381
  146,505
Debt-to-equity ratio
  1.954
  2.030
  2.070
  2.100
  2.120
  2.140
  2.160
  2.170
  2.180
  2.190
  2.200
  2.200
  2.210
  2.210
  2.220
  2.220
  2.220
  2.230
  2.230
  2.230
  2.230
  2.230
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
  2.240
Adjusted equity ratio
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307
  0.307

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  803
  771
  933
  1,115
  1,316
  1,537
  1,777
  2,036
  2,313
  2,607
  2,920
  3,253
  3,599
  3,962
  4,341
  4,737
  5,149
  5,578
  6,024
  6,488
  6,970
  7,471
  7,992
  8,533
  9,095
  9,681
  10,290
  10,924
  11,584
  12,272
  12,989
Depreciation, amort., depletion, $m
  178
  223
  270
  323
  382
  446
  516
  592
  673
  760
  852
  943
  1,045
  1,152
  1,264
  1,381
  1,502
  1,629
  1,760
  1,897
  2,040
  2,188
  2,341
  2,501
  2,667
  2,840
  3,019
  3,206
  3,401
  3,604
  3,816
Funds from operations, $m
  942
  994
  1,203
  1,438
  1,698
  1,983
  2,293
  2,628
  2,986
  3,367
  3,771
  4,196
  4,644
  5,114
  5,605
  6,117
  6,651
  7,207
  7,785
  8,385
  9,010
  9,659
  10,333
  11,034
  11,762
  12,520
  13,309
  14,130
  14,985
  15,876
  16,805
Change in working capital, $m
  -22
  -30
  -34
  -38
  -43
  -47
  -51
  -55
  -59
  -63
  -67
  -70
  -74
  -78
  -81
  -85
  -88
  -92
  -96
  -99
  -103
  -107
  -112
  -116
  -121
  -125
  -130
  -136
  -141
  -147
  -154
Cash from operations, $m
  964
  1,024
  1,237
  1,476
  1,741
  2,030
  2,344
  2,683
  3,045
  3,430
  3,838
  4,266
  4,718
  5,191
  5,686
  6,202
  6,739
  7,299
  7,880
  8,485
  9,113
  9,766
  10,444
  11,150
  11,883
  12,646
  13,440
  14,266
  15,127
  16,024
  16,959
Maintenance CAPEX, $m
  0
  -176
  -218
  -265
  -318
  -376
  -441
  -511
  -587
  -668
  -755
  -846
  -943
  -1,045
  -1,152
  -1,264
  -1,381
  -1,502
  -1,629
  -1,760
  -1,897
  -2,040
  -2,188
  -2,341
  -2,501
  -2,667
  -2,840
  -3,019
  -3,206
  -3,401
  -3,604
New CAPEX, $m
  -674
  -1,192
  -1,357
  -1,523
  -1,691
  -1,857
  -2,021
  -2,183
  -2,340
  -2,494
  -2,644
  -2,791
  -2,936
  -3,078
  -3,219
  -3,361
  -3,503
  -3,646
  -3,793
  -3,943
  -4,098
  -4,258
  -4,425
  -4,600
  -4,782
  -4,974
  -5,175
  -5,387
  -5,611
  -5,846
  -6,095
Cash from investing activities, $m
  -857
  -1,368
  -1,575
  -1,788
  -2,009
  -2,233
  -2,462
  -2,694
  -2,927
  -3,162
  -3,399
  -3,637
  -3,879
  -4,123
  -4,371
  -4,625
  -4,884
  -5,148
  -5,422
  -5,703
  -5,995
  -6,298
  -6,613
  -6,941
  -7,283
  -7,641
  -8,015
  -8,406
  -8,817
  -9,247
  -9,699
Free cash flow, $m
  107
  -344
  -337
  -312
  -268
  -203
  -118
  -11
  118
  268
  439
  629
  839
  1,068
  1,314
  1,577
  1,856
  2,150
  2,459
  2,781
  3,118
  3,468
  3,832
  4,209
  4,600
  5,005
  5,425
  5,859
  6,310
  6,776
  7,260
Issuance/(repayment) of debt, $m
  644
  1,109
  1,253
  1,407
  1,562
  1,716
  1,867
  2,016
  2,162
  2,304
  2,443
  2,579
  2,712
  2,844
  2,974
  3,105
  3,236
  3,369
  3,504
  3,643
  3,786
  3,934
  4,088
  4,249
  4,418
  4,595
  4,781
  4,977
  5,183
  5,401
  5,631
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  618
  1,109
  1,253
  1,407
  1,562
  1,716
  1,867
  2,016
  2,162
  2,304
  2,443
  2,579
  2,712
  2,844
  2,974
  3,105
  3,236
  3,369
  3,504
  3,643
  3,786
  3,934
  4,088
  4,249
  4,418
  4,595
  4,781
  4,977
  5,183
  5,401
  5,631
Total cash flow (excl. dividends), $m
  725
  765
  917
  1,096
  1,294
  1,512
  1,750
  2,006
  2,280
  2,572
  2,882
  3,208
  3,551
  3,912
  4,289
  4,682
  5,092
  5,519
  5,963
  6,424
  6,904
  7,402
  7,920
  8,458
  9,018
  9,600
  10,206
  10,836
  11,493
  12,177
  12,891
Retained Cash Flow (-), $m
  -70
  -487
  -555
  -623
  -692
  -760
  -827
  -893
  -958
  -1,021
  -1,082
  -1,142
  -1,201
  -1,260
  -1,318
  -1,375
  -1,433
  -1,492
  -1,552
  -1,614
  -1,677
  -1,743
  -1,811
  -1,883
  -1,957
  -2,036
  -2,118
  -2,205
  -2,296
  -2,393
  -2,494
Prev. year cash balance distribution, $m
 
  15
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  293
  361
  472
  602
  752
  922
  1,112
  1,322
  1,551
  1,800
  2,065
  2,350
  2,652
  2,971
  3,307
  3,659
  4,026
  4,410
  4,810
  5,227
  5,659
  6,109
  6,576
  7,061
  7,564
  8,088
  8,631
  9,197
  9,785
  10,396
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  269
  302
  355
  405
  448
  480
  501
  509
  504
  487
  459
  422
  378
  331
  283
  235
  191
  151
  116
  87
  63
  44
  30
  20
  13
  8
  5
  3
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Magellan Midstream Partners, L.P. engages in the transportation, storage, and distribution of refined petroleum products and crude oil in the United States. The company operates through Refined Products, Crude Oil, and Marine Storage segments. It operates refined products pipeline that transports gasoline, distillates, aviation fuels, and liquefied petroleum gases for independent and integrated oil companies, wholesalers, retailers, traders, railroads, airlines, and regional farm cooperatives; and provides services, including terminalling, ethanol and biodiesel unloading and loading, additive injection, custom blending, laboratory testing, and data services. The company also owns and operates crude oil pipelines and storage facilities; and marine terminals located along coastal waterways that provide distribution, storage, blending, inventory management, and additive injection services for refiners, marketers, traders, and other end users of petroleum products. As of December 31, 2016, it had 9,700-mile refined products pipeline system with 53 terminals, as well as 26 independent terminals; 1,100-mile ammonia pipeline system; approximately 2,200 miles of crude oil pipelines and storage facilities with an aggregate storage capacity of approximately 22 million barrels; and 5 marine terminals located along coastal waterways with an aggregate storage capacity of approximately 26 million barrels. The company serves as the general partner of Magellan GP, LLC. Magellan Midstream Partners, L.P. was founded in 2000 and is headquartered in Tulsa, Oklahoma.

FINANCIAL RATIOS  of  Magellan Midstream Partners (MMP)

Valuation Ratios
P/E Ratio 18.4
Price to Sales 6.7
Price to Book 7.1
Price to Tangible Book
Price to Cash Flow 15.3
Price to Free Cash Flow 50.9
Growth Rates
Sales Growth Rate 0.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 8.5%
Cap. Spend. - 3 Yr. Gr. Rate 10.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 195.4%
Total Debt to Equity 195.4%
Interest Coverage 0
Management Effectiveness
Return On Assets 12.5%
Ret/ On Assets - 3 Yr. Avg. 14.3%
Return On Total Capital 13.8%
Ret/ On T. Cap. - 3 Yr. Avg. 16%
Return On Equity 39%
Return On Equity - 3 Yr. Avg. 43%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 55.2%
Gross Margin - 3 Yr. Avg. 54.7%
EBITDA Margin 44.6%
EBITDA Margin - 3 Yr. Avg. 44.1%
Operating Margin 42.4%
Oper. Margin - 3 Yr. Avg. 42.6%
Pre-Tax Margin 36.6%
Pre-Tax Margin - 3 Yr. Avg. 36.6%
Net Profit Margin 36.4%
Net Profit Margin - 3 Yr. Avg. 36.5%
Effective Tax Rate 0.4%
Eff/ Tax Rate - 3 Yr. Avg. 0.4%
Payout Ratio 92%

MMP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MMP stock intrinsic value calculation we used $2205 million for the last fiscal year's total revenue generated by Magellan Midstream Partners. The default revenue input number comes from 2016 income statement of Magellan Midstream Partners. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our MMP stock valuation model: a) initial revenue growth rate of 23.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9%, whose default value for MMP is calculated based on our internal credit rating of Magellan Midstream Partners, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Magellan Midstream Partners.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of MMP stock the variable cost ratio is equal to 56%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for MMP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Magellan Midstream Partners.

Corporate tax rate of 27% is the nominal tax rate for Magellan Midstream Partners. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the MMP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for MMP are equal to 230.1%.

Life of production assets of 28.8 years is the average useful life of capital assets used in Magellan Midstream Partners operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for MMP is equal to -5.8%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2092 million for Magellan Midstream Partners - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 228.648 million for Magellan Midstream Partners is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Magellan Midstream Partners at the current share price and the inputted number of shares is $14.8 billion.

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COMPANY NEWS

▶ How Large-Cap MLPs Fared in 2Q17   [Aug-10-17 01:34PM  Market Realist]
▶ Action Alerts PLUS: There's Strength in (Earnings) Numbers   [Aug-06-17 10:00AM  TheStreet.com]
▶ Enterprise Products Partners Revenue Rose 1.7% in 2Q17   [Aug-04-17 12:06PM  Market Realist]
▶ Magellan Midstream beats Street 2Q forecasts   [Aug-02-17 10:32PM  Associated Press]
▶ PAA, WPZ, MMP, and CQP: Last Weeks Key MLP Rating Changes   [Jul-25-17 07:41AM  Market Realist]
▶ Magellan Midstream Partners raises dividend by 2%   [Jul-20-17 09:53AM  MarketWatch]
▶ Evacuees return home after daylong cleanup of pipeline break   [Jul-13-17 10:09PM  Associated Press]
▶ What MLP Valuations in June Tell Us Now   [Jul-07-17 09:09AM  Market Realist]
▶ RMP, MMP, HCLP: Key MLP Ratings Updates Last Week   [Jun-27-17 07:42AM  Market Realist]
▶ Alerian MLP ETF (AMLP): The Quick Guide to AMLP   [Jun-23-17 02:48PM  InvestorPlace]
▶ Why Oil Prices May Plummet to Nearly $20 a Barrel in 2018   [Jun-21-17 10:59AM  TheStreet.com]
▶ How Sustainable Is Targa Resources Corp.'s 8% Dividend?   [Jun-13-17 05:25PM  Motley Fool]
▶ The 1 Stock I'd Never Put in an IRA   [May-27-17 07:04AM  Motley Fool]
▶ Jim Cramer's 4 Favorite Oil Plays   [May-21-17 11:00AM  TheStreet.com]
▶ Magellan Midstream Partners: Cramer's Top Takeaways   [May-16-17 06:39AM  TheStreet.com]
▶ Cramer Remix: Why China may have just beaten Washington   [May-15-17 07:21PM  CNBC Videos]
▶ Magellan Midstreams Sell Recommendations Fall after Upgrade   [May-11-17 04:35PM  Market Realist]
▶ Magellan Evaluates New Texas Oil Pipeline   [May-03-17 08:00PM  Rigzone.com]
▶ Magellan Midstream tops Street 1Q forecasts   [08:37AM  Associated Press]
▶ Midstream Stocks Returns and Implied Volatilities   [Apr-27-17 03:06PM  Market Realist]
▶ EnLink Midstream Partners Implied Volatility Rose the Most   [Apr-20-17 11:46AM  Market Realist]
▶ Hate Risk? You'll Love These 3 Stocks   [Apr-19-17 12:00PM  Motley Fool]
▶ Magellan Midstream Partners: Cramer's Top Takeawasy   [Apr-13-17 05:39PM  TheStreet.com]
▶ Magellan Midstream Partners Poised to Move Higher   [Apr-07-17 08:35AM  TheStreet.com]
▶ 3 Ways to Invest in Energy Infrastructure (AMLP, MMP)   [Apr-05-17 09:53AM  Investopedia]
Stock chart of MMP Financial statements of MMP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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