MMP - Schwab

Morningstar Equity Analyst Report | Report as of 01 Apr 2020 11:51, UTC | Page 1 of 17
Magellan Midstream Partners LP MMP (XNYS)

Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship
QQQQQ 34.76 USD 55.00 USD 0.63 11.14 11.82 7.92 Oil & Gas Midstream Exemplary
01 Apr 2020 01 Apr 2020 10 Mar 2020 01 Apr 2020 01 Apr 2020 01 Apr 2020
21:48, UTC 05:42, UTC
Morningstar Pillars Analyst Quantitative Important Disclosure:

Economic Moat Wide Wide The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of Conduct Policy, Personal Security Trading Policy (or an equivalent of),
Valuation QQQQQ Undervalued and Investment Research Policy. For information regarding conflicts of interest, please visit http://global.morningstar.com/equitydisclosures
Uncertainty Medium High
Financial Health — Moderate Permian Oil Differentials Have Blown Out Again; The Situation Does Not
Source: Morningstar Equity Research
Rhyme with 2018
Quantitative Valuation
MMP Business Strategy and Outlook suggesting sizable capacity for capital return while still
o
USA
keeping leverage at reasonable levels.
Stephen Ellis, Analyst, 27 March 2020
Undervalued Fairly Valued Overvalued Magellan’s refined product pipelines are high-quality
assets that have contributed to earnings stability as well Analyst Note
Current 5-Yr Avg Sector Country
Price/Quant Fair Value 0.68 0.95 0.84 0.83
as steady increases in distributions over time. The Stephen Ellis, Analyst, 01 April 2020
Price/Earnings 8.2 17.5 16.0 20.1 pipelines connect refineries to end markets such as gas Permian oil differentials have blown out again as the
Forward P/E 8.9 — 10.9 13.9 stations and railroads. As both supply and demand are Midland and Houston corridors are trading about $7 and
Price/Cash Flow 6.3 14.2 6.7 13.1 remarkably steady over time, Magellan has been able to $5 per barrel below WTI, and spreads have been as wide
Price/Free Cash Flow 22.1 32.2 14.4 19.5
Trailing Dividend Yield% 11.14 5.32 3.75 2.35
extract modest inflation-linked price increases. However, as $10 a barrel recently. This means that some producers
Source: Morningstar the maturity of the marketplace and the emergence of are getting as low as $10 a barrel for oil, a far cry from
refiner master limited partnerships as competitors for the current $20 trading levels. However, the situation is
Bulls Say refined product assets have limited investment not like 2018, where Permian differentials blew out
OMagellan has been highly discerning with regards opportunities over the past few years. As a result, temporarily due to a short-term mismatch between a lack
to capital allocation and invested in a number of Magellan has invested more than $5 billion largely of pipeline capacity and ramping supply at much higher
attractive projects at excellent prices. elsewhere since 2010 and has built up a respectable but oil price levels, which was resolved with new pipeline
OMagellan supplies more than 40% of the refined ultimately more volatile and lower-quality crude oil capacity. The current environment is a combination of a
products to 7 of the 15 states it serves. pipeline and marine storage business, which now demand and supply shock, to the extent that midstream
OMagellan only undertakes profitable butane contributes about 45% of operating margin. While the firms such as Plains have been requesting that Permian
blending opportunities when spreads warrant it, competitive intensity of the new businesses is higher than producers scale back production as well as prove they
meaning this is a low-risk endeavor. the core refined product pipelines, we’ve been impressed have a ready buyer for their barrels as local Permian
by Magellan’s capital discipline, as the projects have storage is being overwhelmed. We do not see any fair
yielded high returns and supported continued distribution value or moat impacts to our coverage universe, but this
Bears Say
growth. does demonstrate the industry shake-out is occurring and
OPeak gasoline demand could pressure volumes on
investors should be aligned with quality operators on both
Magellan's system, which generates the bulk of the
2019 was a heavy capital spending year, with $1.1 billion the midstream and E&P side.
partnership's earnings.
earmarked for growth projects and another $500 million
OThe emergence of refinery MLPs has limited
in projects under consideration, supporting growth well We think there are several takeaways. Owners of oil
Magellan’s opportunities to invest more in its refined
beyond 2020. One critical project under consideration is storage such as Plains, Enterprise Products Partners, and
product network.
the Voyager crude oil pipeline, which plans to move Magellan are likely to reap substantially higher profits as
OMagellan’s crude oil and storage assets are not as 400,000 barrels per day from Cushing and Midland to storage rates and volumes increase. Also, like in 2018, we
high quality as the core refined product business. Houston, which we expect to be deferred for the time broadly expect our E&P coverage to be largely insulated
being. Magellan will be impacted in 2020 by lower from wider spreads, given the focus on long-term fixed
blending margins, lower volumes (particularly jet fuel and fee transportation agreements. Diamondback, for
gasoline), and a reduction in drilling activity. However, we example, has less than 10% of its production exposed to
expected refined product demand to return to normalized wider differentials and is nearly fully hedged.
levels by late 2020.
Economic Moat
In 2020, our focus remains on capital allocation. Growth Stephen Ellis, Analyst, 27 March 2020
spending is expected to be around $400 million, and Magellan Midstream Partners has a wide economic moat.
Magellan has already raised about $325 million via asset We do believe the narrow-moat pipeline and marine
sales year to date. With a newly announced $750 million terminal businesses will eventually generate the majority
unit buyback in place, the partnership has already bought of Magellan’s earnings in the next decade as the core
back over $200 million in units in 2020. We estimate refined product business slows amid stagnant demand.
debt/EBITDA of around 3.5 times going forward, However, we still expect Magellan will benefit from a
?
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Morningstar Equity Analyst Report |Page 2 of 17

21:48, UTC 05:42, UTC
Close Competitors Currency (Mil) Market Cap TTM Sales Operating Margin TTM/PE use storage facilities to capture price differentials over
Enterprise Products Partners LP EPD USD 30,945 32,789 16.82 6.60 time; and direct more hydrocarbons through its system via
storage and gathering and processing assets, ensuring
Phillips 66 Partners LP PSXP USD 8,237 1,126 44.23 8.41
security of flows and higher fees. Finally, as an incumbent
pipeline, it is typically cheaper to add capacity via
compression, pumps, or a parallel line than it would be for
particularly strong efficient scale moat source, given the a competitor to build a competing line.
lack of alternatives for its refined product pipelines (it
provides more than 40% of refined products to 7 of the To assess the strength of a midstream firm’s moat, we
15 states it serves), and with stable demand forecast, consider two factors: the location and quality of the firm’s
there’s zero incentive for new competing pipelines to be assets and the strength of the firm’s contract coverage.
built. Despite the lower-quality business mix, we expect
returns on invested capital to remain well ahead of Magellan’s refined product pipelines are an extremely
Magellan’s cost of capital because of the minimal attractive business that has served as a reliable cash flow
reinvestment needs of the refined product business. Even generator for Magellan to expand elsewhere. The
if we assume refined product pricing declines by 50%--an infrastructure is fundamentally better positioned than
extremely unlikely scenario, given that pricing generally most if not all natural gas and oil pipelines for a few
only moves a few percentage points annually--Magellan's reasons. First, as the 9,800 miles of pipes across 15 states
ROICs are around 12% (versus 15% in our base case), connects refineries to end markets such as gas stations
demonstrating the strength of the business. ROICs are via 53 Magellan terminals, demand is highly stable as it
also supported by strong capital allocation as well as the depends on consumer demand in terms of miles driven
elimination of its incentive distribution rights in 2010, and fuel efficiency. Similarly, supply and thus flows are
which lowered its cost of capital. less volatile as it is aggregated by a refinery versus
multiple gathering and processing units linked to levels of
New pipelines are typically constructed to allow shippers drilling activity. Second, with Magellan serving the
or producers to take advantage of large price differentials midcontinent, which has benefited the most in recent
(basis differentials) between two market hubs because years from an increase in light crude supply, Magellan
supply and demand is out of balance in both markets. serves some of the most profitable refineries in the United
Pipeline operators will enter into long-term contracts with States, meaning it can easily boost prices 2%-3% annually
shippers to recover the project’s construction and in line with inflation with little pushback, as the costs are
development costs, in exchange for a reasonable tariff passed through to the end consumer. Third, we’d
that allows a shipper to capture a profitable differential, characterize the incremental fee opportunities from
and capacity will be added until it is no longer profitable refined product storage terminals and butane blending as
to do so. Pipelines are approved by regulators only when low risk and attractive, given the lack of volatility in
there is an economic need, and pipeline development Magellan’s end markets. Finally, given the completely
takes about three years, according to the U.S. Energy stagnant demand outlook, virtually no new pipes are being
Information Administration. Regulatory oversight is constructed, meaning Magellan faces no new competitive
provided by the Federal Energy Regulatory Commission threats from that angle.
and at the state and local levels, and new pipelines under
consideration have to contend with onerous environmental Magellan’s portfolio of crude oil pipelines and terminals
and other permitting issues. Further, project economics is attractive, but we see it as a narrow-moat business. The
are locked in through long-term contracts with producers most important asset is the Longhorn pipeline, which
before even breaking ground on the project. If contracts transports 275,000 bpd to Houston from the Permian
cannot be secured, the pipeline will not be built. A network Basin. Magellan’s other important crude oil assets are
of pipelines serving multiple end markets and supplied by mainly joint venture activities, such as the BridgeTex
multiple regions is typically more valuable than a pipeline (30% owned by Magellan), which transports
scattered collection of assets. A pipeline network allows 440,000 bpd to Houston from the Permian Basin, and
the midstream firm to optimize the flow of hydrocarbons Double Eagle (50% owned by Magellan), a 100,000 bpd
across the system and capture geographic differentials; pipeline that delivers Eagle Ford condensate to Magellan’s
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Corpus Christi terminal. higher than the variable cost to ship the barrel. These types
of transactions take place where the market price or
We consider Magellan’s storage business to be better differential is lower than the published tariff for the
than average due to its position in Galena Park on the pipeline, and FERC has indicated that this type of
Houston Ship Channel but we still see it as having no transaction is an illegal rebate. Whether FERC plans to
moat, given the lack of barriers to entry. Terminals are enforce this issue across the industry is an open question
used to take advantage of changes in seasonal demand and depends on the rehearings. The net result is that while
by marketers or traders, tankage constraints, or the a marketing affiliate is not terribly critical for Magellan,
specialized handling needs of the product. Rates are given its focus on refined products, it has managed to sow
unregulated, and about 80% of capacity tends to be under regulatory uncertainty for a number of its larger peers that
contract at any given time for about three years, where depend more on liquid pipelines and marketing activities
the customer pays for capacity regardless of actual usage. to generate fees.
Magellan’s Galena Park terminal has about 13 million
barrels of storage, and access to multiple pipelines as From a contract coverage perspective, we consider
well as docks that can accommodate ship traffic. The Magellan’s position to be weak, but the maturity and
facility is particularly important because of the growing stability of the refined product market has lent itself to a
demand for exports of refined products and NGLs, and niche where long-term contracts are less frequently used
access to five docks is an important competitive than in nearly all pipeline markets. Magellan only seeks
advantage given geographic constraints. We have mixed long-term contracts when further investments are needed
feelings about the 50/50 joint venture with Valero Energy to ensure recovery of its capital, so only about 40% of its
for the development of the Pasadena marine storage refined product shipments were subject to term
terminal, which includes 5 million barrels of storage and commitments (usually involving reduced fees) with about
two ship docks. We think the joint venture was needed three years until expiry. Given the refined products markets
for Magellan to possibly acquire access to Valero is demand driven, customer credit is not usually relevant,
refineries, but we think this is an attractive asset that as if one customer lowers utilization, another one steps
could have been fully funded by Magellan and thus retain in. With the market being demand driven and the high
full economics. That said, we expect the shortage of stability and security of pipeline flows and limited
storage in the HSC to eventually be addressed within a alternatives to Magellan pipelines, there is lower risk than
few years as competitors add new capacity, lowering average for Magellan, but without contract coverage,
returns. Magellan is exposed to lower volumes over time due to
higher levels of fuel efficiency in the United States.
We’d note that Magellan has submitted a FERC Magellan's major crude oil pipelines are largely
application for a crude oil marketing operation, which we contracted (75%-87%) under contracts that have an
think would help it obtain incremental barrels for its average remaining life of between four and seven years.
operations. The main focus initially is for its BridgeTex
pipeline, which is not fully contracted, and Magellan Fair Value & Profit Drivers
wants to obtain incremental barrels when differentials Stephen Ellis, Analyst, 27 March 2020
make it profitable to do so. The application has initially After updating our model to factor in lower blending
been denied by FERC because Magellan’s plans for the margins and refined product volumes for 2020, our fair
unit would violate the Interstate Commerce Act, though value estimate remains $55 per unit. Our fair value
a rehearing will take place eventually. However, we estimate implies a 2020 EBITDA multiple of 12.6 times, a
believe an important reason the application was 2021 EBITDA multiple of 11 times, and a distribution yield
submitted to FERC was also to create uncertainty for of 8%. We expect the lower blending margins, lower
competitors. Magellan specifically asked for permission refined products demand, weaker crude volumes, to be
to undertake marketing activities that peers such as Plains somewhat offset by expense savings and storage benefits
use, which are transactions where the marketing affiliate to result in distributable cash flow about $150 million
will lose money on a transaction to generate a profitable lower than management's original 2020 guidance of $1.2
transaction for the pipeline entity, and an overall net billion.
positive transaction because the implied tariff is still
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21:48, UTC 05:42, UTC
We expect Magellan to continue to benefit from a stable is operational risk and longer-term cyclical risk from these
environment for its refined product footprint over the long businesses.
run, which will serve as the cash cow for its investments
in crude oil pipelines and marine terminals. We expect Magellan is also sensitive to the prevailing interest rate
revenue growth to be about 3% on average over the next environment. The partnership offers a yield lower than
five years. We do not see a need for the partnership to many of its peers, given its superior return and growth
raise equity capital in the near term. 2019 marked a bit of profile. Nevertheless, in a rising interest-rate
a reset year for Magellan after the sale of a stake in environment, the expected yield from limited partner units
BridgeTex resulting in the loss of joint venture income, may increase. We believe the partnership’s below-average
tariff declines on its Permian pipelines, and shifts in cost of capital paired with above-average returns and
volume mix across its refined product pipelines toward its growth merits a lower yield. However, changing risk
Houston distribution efforts where tariffs are very low, appetites could subsequently pressure the unit price.
flattening overall refined product tariff growth. That said,
with $1.1 billion in growth investments in 2019, we expect Stewardship
this to support growth over the medium term. We expect Stephen Ellis, Analyst, 04 February 2020
lower expected growth capital spending plans of $400 We award an Exemplary stewardship rating to Magellan’s
million in 2020, and similar annual investments expected management, which is among the best in the industry.
going forward. Management has consistently been ahead of the curve in
its strategic vision and pragmatic approach to managing
Risk & Uncertainty and deploying capital. Michael Mears, chairman of the
Stephen Ellis, Analyst, 27 March 2020 board, president, and CEO of Magellan's general partner,
Magellan’s business is relatively insulated from much of has been with the company for about three decades,
the commodity cycle volatility affecting other midstream serving in various management roles. Under his
businesses under our coverage. Nevertheless, the leadership, Magellan was among the first MLPs to simplify
partnership faces risks from peaking refined product its capital structure when the LP bought out its general
demand, execution in new operating areas, and rising partner in an all-stock deal in 2009. In addition to a lower
interest rates. We see most of these risks as nominal. cost of capital, this streamlined structure better funnels
the benefit of earnings growth to LP holders. We prefer
About 55% Magellan’s operating margin comes from names with this simplified structure.
transportation of refined products. Management is
working to diversify its sources of earnings. However, the Management’s approach to balancing capital deployment,
majority of the partnership’s results are tied to continued funding, and earnings growth separates it from many of
robust demand for gasoline and diesel, particularly in the its midstream peers. Recent examples on this front include
central third of the U.S. This segment benefits from the recent sale of a 20% stake in BridgeTex, which
annually adjusted tariff rate increases tied to PPI, but any obtained a very healthy multiple, the cancelation of the
reduction in fuel demand could pressure earnings. We do Permian Gulf Coast pipeline after lack of shipper interest,
not see this as an immediate threat to the business but and two asset sales so far in 2020 that look to raise about
are mindful of longer-term lower refined product demand $325 million at attractive multiples. In an industry fraught
as we expect gasoline demand to decline in the years with dilutive equity issuances, we applaud management’s
ahead. ability to deliver top-tier distribution growth without
tapping equity markets since 2010. Much of this stems
We could see the risk to the refined product business from attractive project returns (such as its latest
manifested in the partnership’s efforts to diversify the investment to expand the Seabrook crude oil export
business. Operating a condensate splitter and developing terminal) and ample distribution coverage. We see greater
crude pipelines are newer business ventures for than $1.7 billion of excess distributable cash flow
Magellan. While the partnership has mitigated much of generated since 2010 providing a differentiated platform
this risk through establishing joint ventures with other for management to target growth opportunities.
experienced operators and mitigated commodity cycle Management also preserves ample debt capacity with a
volatility through predominantly contracted offtake, there leverage ratio consistently below its 4 times target. We
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21:48, UTC 05:42, UTC
see this leading to an industry-leading cost of capital that

allows management to bid competitively on new projects
while maintaining an above-average return profile.
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21:48, UTC 05:42, UTC
teams and corporate boardrooms to take a new approach.

Analyst Notes Archive If the industry prioritized, we think it could easily
repurchase 5% of its units or shares outstanding annually
Magellan Delivers as Expected in 3Q; Outlook and have plenty left over for distributions and growth
Looks Solid, if Slower Growth capital spending.
Stephen Ellis, Analyst, 31 October 2019
Magellan's third-quarter results were as expected, as the Midstream firms have made many changes over the past
partnership's wide-moat business continues to deliver few years to address investor concerns, including largely
reliable results. We plan to maintain our $72 fair value eliminating the use of incentive distribution rights,
estimate. Operating profit increased 8% to $320.5 million, reducing leverage, reducing the use of equity issuances
with good performance across all segments. Even as by boosting coverage ratios, consolidating general
gasoline volumes have declined this year, this has been partners and limited partners, and growing distributions
more than offset by increase in distillate and aviation fuel in a more thoughtful manner.
volumes, helping the refined products segment do well.
Refined products also benefited from a 4.3% tariff Yet, the Alerian MLP Index is down 40% from its
increase. Magellan even increased its 2019 distributable September 2014 highs and down 20% since July 2019,
cash flow guidance modestly to $1.26 billion, matching while the rest of the market keeps climbing. The average
our estimates, as it continues to capture better-than-expected yield across our midstream coverage is about 9%, with
differentials between the Permian Basin and Houston. several firms well above 10%. In short, the midstream
industry needs to do more.
Growth capital expenditures are expected to wind down
from an unusually heavy spending year to $400 million in For management teams unable to pivot effectively, they
2020 from $1 billion in 2019. However, we still expect are sending the message that their own interests are
distributable cash flow to increase about 1% as new deeply misaligned with shareholders' interests. We also
projects come online. For reference, Magellan averaged don't think midstream fundamentals have deteriorated to
about $700 million in growth capital expenditures the same extent as the recent stock price declines, with
annually (including investments in non-controlled entities) several firms deeply undervalued, including Enterprise
from 2012-18 and was able to double distributable cash Products Partners, MPLX, and Energy Transfer.
flow over the same time frame. We don't expect a similar
performance over the next five years due to the larger ESG Implications for the Midstream Oil and Gas
asset base, but we expect EBITDA growth to average Industry
about 3% annually from 2020 to 2023. Stephen Ellis, Analyst, 05 December 2019
Investors are increasingly paying attention to
Dear U.S. Midstream Management Teams: Improve environmental, social, and governance, or ESG, factors,
Capital-Allocation Practices, Please and for midstream companies, environmental concerns
Stephen Ellis, Analyst, 20 November 2019 are paramount. Pipeline companies are "enablers" that
With the recent downdraft in stock and partnership unit encourage downstream consumption of fossil fuels,
prices across the midstream sector, we think investors are making them partially accountable for the greenhouse gas
demanding that management teams improve their emissions that follow. Most midstream firms also emit
capital-allocation approaches. And, it's not clear if all waste gasses directly, and the regular occurrence of
management teams are listening at this stage. pipeline spills creates a negative buzz around the industry,
inviting further ESG scrutiny. The direct financial burden
While the size of some implied distribution or dividend associated with these issues is generally modest, as
cuts appears massive at 50% or more to reach ideal levels pipeline spill costs account for only a sliver of industry
at around a 5% yield, we'd characterize them as reflective spending. If increased regulatory pressure eventually
of deep investor frustration with the management teams leads to a carbon tax, we would not expect major valuation
due to suboptimal capital-allocation approaches. With changes as firms would pass most of these costs to end
many midstream firms trading at large discounts to our consumers. However, the resulting reputational damage
fair value estimates, we agree it's time for management threatens relationships with stakeholders on pipeline
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21:48, UTC 05:42, UTC
projects, including local communities, indigenous buybacks, and will hopefully prompt more announcements
populations, and government regulators. This often leads from peers. Broadly, we think more signals from the
to lengthy project delays and increased construction industry around effective capital allocation can only help
costs, and these can be meaningful. Our top picks are reverse the poor investor sentiment plaguing the space.
Cheniere and Plains All American Pipeline, which rank
favorably on ESG issues and are attractively priced. Magellan Reports Strong Fourth Quarter; Highlights
Enbridge also looks undervalued and should see concerns Capital Flexibility for 2020
start to recede because of the emergence of Stephen Ellis, Analyst, 31 January 2020
lower-emission solvent-assisted technologies in the oil Magellan reported strong fourth-quarter results and we
sands. Energy Transfer is one of the cheapest midstream plan to maintain our $72 fair value estimate.
firms we cover, but that could be related to its relatively Fourth-quarter distributable cash flow increased 18%
high exposure to ESG-related factors. from last year's levels thanks to primarily to healthy oil
pipeline and blending results. Higher oil volumes on
Magellan Is Listening to Investors; Announces Magellan's Houston distribution system benefited from
Marine Terminal Sale and Unit Buyback Program oil export volumes to the new Seabrooks Logistics facility.
Stephen Ellis, Analyst, 21 January 2020 Overall distributable cash flow for the year was $1.3
Magellan's announcement of a $250 million sale of three billion, a record, but 2020 results are expected to be a bit
marine terminals and a $750 million buyback is exactly weaker at around $1.2 billion, due to narrower
what we were hoping to see out of the firm, as these differentials on LongHorn and BridgeTex resulting in the
actions directly address investors' issues around capital reduction in spot-market shipments. However, Magellan
allocation for the space. We do not plan on changing our has made good progress on contracting long-term capacity
$72 fair value estimate or wide-moat rating. On the asset on both pipelines, and now expects committed volumes
sale, we estimate the three marine terminals (about 40% to be 230,000/bpd on LongHorn and 400,000/bpd on
of Magellan's marine terminal segment's capacity) will BridgeTex over the near term.
contribute about $38 million in 2019 EBITDA, a bit better
than their average performance of around $34 million in On the capital allocation front, we think Magellan has
EBITDA over the past five years, making the sale improved its flexibility. The recent marine terminal asset
well-timed, in our view. An estimated EBITDA multiple of sale was likely at a very attractive 13 or higher EBITDA
about 6.5 times is low, but we think growth prospects are multiple based on Magellan comments, compared with
fairly limited in the space outside of locations on the Gulf our earlier 6.5 multiple estimate. We don't estimate there
Coast, and the flagship terminal at Galena Park remains is any excess cash left for unit buybacks in 2020 after
with Magellan. factoring in the $250 million asset sale, a 3% increase in
distributions, and $400 million in growth capital spending.
The $750 million unit buyback is very much needed, in our However, with leverage still below 4 times, we do think
view, given the space and Magellan's persistent the partnership can now be opportunistic about returning
undervaluation. We had previously understood that capital to unitholders via buybacks through its recently
Magellan was somewhat constrained on the capital announced $750 million unit buyback program or special
return front, with substantial investor expectations distributions.
attached to its long-standing distribution, an attractive
slate of growth capital projects, and an unwillingness to Lowering Magellan Fair Value Estimate as Growth
increase debt much further. This set of circumstances Slows
pushed back a more aggressive unit buyback until 2021, Stephen Ellis, Analyst, 03 March 2020
yet the asset sale provides Magellan with some near-term After reviewing Magellan's 10-K and reconsidering its
flexibility to execute on a buyback this year. We hope outlook, we are lowering our fair value estimate to $67
Magellan's management team follows through with from $72 per unit. Broadly, as we anticipate Magellan to
actual substantial repurchases. Further, announcing this correctly focus on making accretive investments, while
buyback ahead of earning season will again squarely also addressing investor concerns regarding excess cash
focus the conversations between investors and flow generation (excess cash remaining after funding
management teams at other midstream firms on growth capital spending and distributions), growth is
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21:48, UTC 05:42, UTC
expected to slow. Magellan EBITDA grew on average 12%

over the past three years, while we expect EBITDA growth Oil Has Been the Focus This Week, but Midstream
to average 3% annually over the next five. Lower levels Gas and LNG Are Not Spared
of asset investment lead to less incremental earnings Stephen Ellis, Analyst, 11 March 2020
additions on an annual basis. Holding capital spending We think gas-oriented midstream firms remain the right
(growth and maintenance) at $525 million annually defensive play in this market, with oil prices collapsing in
doesn't generate excess cash by our estimates, meaning the wake of the OPEC+ breakdown. We favor firms such
further asset sales or capital spending cuts are possible. as Energy Transfer, Kinder Morgan, Cheniere, and
However, with debt/EBITDA around 3 times, Magellan is Williams.
not under pressure, in our view, to reduce leverage further,
allowing modest levels of debt financing as needed for In particular, we expect Energy Transfer, Kinder Morgan,
incremental projects. and Cheniere to generate significant excess cash after
investor payouts and capital spending plans, providing
We think Magellan's issues regarding finding new growth them with substantial financial flexibility. Fundamentally,
projects, at least sizable ones, is shared by its peers. retail gas demand remains stable, and utilities will need
However, we continue to expect Magellan to show midstream services to meet demand. Energy Transfer’s and
discipline regarding its investments, given its Exemplary Kinder Morgan’s assets are the backbone of the U.S. gas
stewardship rating, ensuring continued strong returns transportation system. Cheniere's cash flow is supported
that align with its wide-moat status. by long-term LNG contracts that have to be paid even if
customers do not lift cargoes.
Finally, given Magellan's status as an industry leader, it
has typically earned a premium valuation up to 13 to 14 However, even firms with gas exposure face challenges
times EV/EBITDA. As industry growth expectations have in the near to medium term. Falling oil prices will put
slowed, valuation multiples have come down as well. We substantial near-term pressure on Permian producers to
still award Magellan one of highest multiples in the space, curtail oil production. With Permian oil volumes at risk, a
but we think that multiple is now around 13 times 2020 substantial decline in associated gas production from the
EBITDA and 12 times 2021 EBITDA, down about 1 times Permian is likely, as Permian oil producers are indifferent
from earlier estimates. to gas prices because they do not drive well economics.
The Breakdown of OPEC+ Ushers in Tough Times This scenario is particularly concerning for gathering and
for Midstream processing firms in the region, such as Targa and DCP,
Stephen Ellis, Analyst, 09 March 2020 which have contracts that expose them to commodity price
The breakdown of OPEC+ and Russia over the weekend and volume risk. Further, both firms are highly leveraged,
(March 7-8) pushed the oil markets into turmoil. When with debt well over 4 times EBITDA, and are not generating
combined with the expected oil demand destruction from excess cash flow after capital spending and
COVID-19, this is a extremely challenging environment for distributions/dividends. This raises the risk that they will
midstream. We see several negative implications for U.S. cancel projects and face lower volumes and fees while
midstream, and we expect to reduce our fair value having limited financial flexibility. We think both firms
estimates substantially. We also plan to increase our should sharply reduce their payouts to investors and focus
uncertainty ratings across the space. Overall, we expect on debt reduction, but the management teams have been
the industry outlook to be fairly bleak for the next 1-2 deeply reluctant to take that step.
years. We agree that the midstream space is more
defensive than most within energy, and we'd favor names Magellan's Analyst Day and Sensitivity Analysis
that are more exposed to gas and are generating Highlights Its Refined Products Resilience
substantial amounts of excess cash such as Energy Stephen Ellis, Analyst, 27 March 2020
Transfer, Kinder Morgan, and Cheniere. However, selected Magellan's updated commentary on 2020 impacts from
oil-exposed industry leaders such as Enterprise Product the collapse in oil prices and COVID-19 showed, in our
Partners and Magellan still remain attractive and have view, the relative resilience of the partnership's
the balance-sheet flexibility to pivot accordingly. operations to unprecedented market conditions. Our fair
?

21:48, UTC 05:42, UTC
value estimate remains $55 per unit and our wide moat capacity. The current environment is a combination of a
rating remains in place. Our revised distributable cash demand and supply shock, to the extent that midstream
flow estimate for 2020 stands at $1.05 billion compared firms such as Plains have been requesting that Permian
with just over $1.2 billion previously. The reduction comes producers scale back production as well as prove they
from primarily lower blending volumes and margins, lower have a ready buyer for their barrels as local Permian
distillate volumes (jet fuel and gasoline primarily), weaker storage is being overwhelmed. We do not see any fair
drilling activity levels, offset somewhat by expense value or moat impacts to our coverage universe, but this
savings and improved storage volumes. The distribution does demonstrate the industry shake-out is occurring and
per unit payout is safe, as Magellan simply expects the investors should be aligned with quality operators on both
coverage ratio to decline to about 1.1 times this year. the midstream and E&P side.
As part of a sensitivity analysis, the partnership assumes We think there are several takeaways. Owners of oil
25%, 5%, and 25% declines in gasoline, distillate, and storage such as Plains, Enterprise Products Partners, and
jet fuel volumes in the second quarter, but demand to Magellan are likely to reap substantially higher profits as
normalize in the second half of the year. With the relatively storage rates and volumes increase. Also, like in 2018, we
quick return to more normalized operating conditions, we broadly expect our E&P coverage to be largely insulated
estimate distributable cash flow in 2021 to be about $1.2 from wider spreads, given the focus on long-term fixed
billion. 2020 growth capital spending plans of $400 million fee transportation agreements. Diamondback, for
remain unchanged, but the firm has bought back just over example, has less than 10% of its production exposed to
$200 million in units so far. We don't expect the firm to wider differentials and is nearly fully hedged.
generate excess cash flow in 2020, but its debt needs
should be minimal (under $50 million) and easily handled
via its $100 million in cash balance or fully available $1
billion revolver. We expect leverage to be about 3.5 times
for the year.
From a contract perspective, between 75% and 87% of

its major crude oil pipelines (LongHorn, BridgeTex,
SaddleHorn) are under take-or-pay contracts for between
four and seven years on average and 61% of crude
customers are investment-grade. The refined products
business is demand driven and receivables collected in
two to three days. If one customer lowers utilization,
another one steps up to meet the gap, making credit
analysis less relevant.
Permian Oil Differentials Have Blown Out Again;

The Situation Does Not Rhyme with 2018
Stephen Ellis, Analyst, 01 April 2020
Permian oil differentials have blown out again as the
Midland and Houston corridors are trading about $7 and
$5 per barrel below WTI, and spreads have been as wide
as $10 a barrel recently. This means that some producers
are getting as low as $10 a barrel for oil, a far cry from
the current $20 trading levels. However, the situation is
not like 2018, where Permian differentials blew out
temporarily due to a short-term mismatch between a lack
of pipeline capacity and ramping supply at much higher
oil price levels, which was resolved with new pipeline
?
Quantitative Equity Report | Release: 01 Apr 2020, 18:51 UTC | Reporting Currency: USD | Trading Currency: USD | Exchange:XNYS Page
Page 10 1ofof171
Magellan Midstream Partners LP MMP QQQQQQ 01 Apr 2020 02:00 UTC

Last Close Fair ValueQ Market Cap Sector Industry Country of Domicile
01 Apr 2020 01 Apr 2020 02:00 UTC 01 Apr 2020
34.76 53.93 8,309.7 Mil o Energy Oil & Gas Midstream USA United States
There is no one analyst in which a Quantitative Fair Value Estimate and Quantitative
Star Rating are attributed to; however, Mr. Lee Davidson, Head of Quantitative
Price vs. Quantitative Fair Value
Research for Morningstar, Inc., is responsible for overseeing the methodology that 2016 2017 2018 2019 2020 2021 Quantitative Fair Value Estimate
supports the quantitative fair value. As an employee of Morningstar, Inc., Mr. Total Return
Davidson is guided by Morningstar, Inc.’s Code of Ethics and Personal Securities
Trading Policy in carrying out his responsibilities. For information regarding Conflicts Sales/Share
90
of Interests, visit http://global.morningstar.com/equitydisclosures Forecast Range
Forcasted Price
72 Dividend
Company Profile
Split
Magellan Midstream Partners is a master limited partnership Momentum: Negative
54
that operates pipelines and storage terminals in the Central Standard Deviation: 26.07
and Eastern United States. Its assets transport, store, and Liquidity: High
36
distribute refined petroleum products and crude and earn a
fee-based stream of cash flows. Assets include the country's 22.02 52-Wk 67.75
longest petroleum pipeline network, terminal storage, and 18
several crude oil pipelines. Refined products make about 55% 22.02 5-Yr 85.49
of operating margin, with the balance split between crude
16.1 -1.5 -14.2 17.3 -43.1 Total Return %
pipelines and marine terminals.
3.7 -23.0 -9.2 -14.0 -22.5 +/– Market (Morningstar US Index)
Quantitative Scores Scores 4.29 4.97 6.65 6.42 11.14 Trailing Dividend Yield %
All Rel Sector Rel Country 4.43 4.97 6.85 6.49 11.26 Forward Dividend Yield %
Quantitative Moat Wide 100 100 99 21.7 19.2 10.4 13.7 8.2 Price/Earnings
Valuation Undervalued 38 15 31 8.0 6.6 4.9 5.0 3.1 Price/Revenue
Quantitative Uncertainty High 98 100 97 Morningstar RatingQ
Financial Health Moderate 58 53 58 QQQQQ
QQQQ
QQQ
MMP QQ
Q
o
USA
2015 2016 2017 2018 2019 TTM Financials (Fiscal Year in Mil)
Undervalued Fairly Valued Overvalued 2,188 2,205 2,508 2,827 2,728 2,728 Revenue
Source: Morningstar Equity Research -5.0 0.8 13.7 12.7 -3.5 0.0 % Change
897 856 932 1,013 1,035 1,035 Operating Income
-6.0 -4.5 8.8 8.8 2.1 0.0 % Change
Valuation Sector Country
Current 5-Yr Avg Median Median 819 803 870 1,334 1,021 1,021 Net Income
Price/Quant Fair Value 0.68 0.95 0.84 0.83 1,070 964 1,109 1,353 1,321 1,321 Operating Cash Flow
Price/Earnings 8.2 17.5 16.0 20.1 -621 -674 -559 -552 -944 -944 Capital Spending
Forward P/E 8.9 — 10.9 13.9 449 290 550 801 377 377 Free Cash Flow
Price/Cash Flow 6.3 14.2 6.7 13.1 20.5 13.1 21.9 28.3 13.8 13.8 % Sales
Price/Free Cash Flow 22.1 32.2 14.4 19.5 3.59 3.52 3.81 5.84 4.46 4.46 EPS
Trailing Dividend Yield % 11.14 5.32 3.75 2.35 -2.7 -1.9 8.2 53.3 -23.6 0.0 % Change
Price/Book 3.1 7.4 1.3 2.4 2.44 1.21 2.39 2.82 2.25 1.65 Free Cash Flow/Share
Price/Sales 3.1 6.6 1.3 2.4 2.92 3.25 3.52 3.79 4.04 4.04 Dividends/Share
8.72 8.99 9.36 11.16 11.71 11.92 Book Value/Share
Profitability Sector Country 227,427 227,784 228,025 228,195 228,403 227,724 Shares Outstanding (K)
Current 5-Yr Avg Median Median
Profitability
Return on Equity % 38.1 43.3 9.8 12.9
42.1 39.0 41.2 55.9 38.1 38.1 Return on Equity %
Return on Assets % 12.6 13.8 4.6 5.2
14.2 12.5 12.3 17.6 12.6 12.6 Return on Assets %
Revenue/Employee (Mil) 1.4 1.4 1.6 0.3
37.4 36.4 34.7 47.2 37.4 37.4 Net Margin %
0.38 0.34 0.35 0.37 0.34 0.34 Asset Turnover
Financial Health Sector Country
Current 5-Yr Avg Median Median 3.0 3.2 3.5 2.9 3.1 3.1 Financial Leverage
Distance to Default 0.5 0.7 0.5 0.5 71.9 69.6 66.8 65.7 68.3 68.3 Gross Margin %
Solvency Score 484.4 — 582.8 552.4 41.0 38.8 37.2 35.9 37.9 37.9 Operating Margin %
Assets/Equity 3.1 3.1 1.6 1.7 3,189 4,087 4,274 4,211 4,706 4,706 Long-Term Debt
Long-Term Debt/Equity 1.7 1.8 0.4 0.4 0 0 0 0 0 0 Total Equity
0.5 0.4 0.5 0.5 0.4 0.4 Fixed Asset Turns
Growth Per Share Quarterly Revenue & EPS Revenue Growth Year On Year %
1-Year 3-Year 5-Year 10-Year Revenue (Mil) Mar Jun Sep Dec Total
Revenue % -3.5 7.3 2.9 10.4 2019 628.9 701.7 656.6 740.7 2,727.9 28.6
Operating Income % 2.1 6.4 1.6 13.4 2018 678.8 644.1 638.0 865.7 2,826.6
Earnings % -23.6 8.2 3.9 14.9 2017 642.1 619.4 572.8 673.3 2,507.7
9.5 11.4 8.9
Dividends % 6.4 7.5 10.0 11.0 2016 519.8 518.9 551.8 614.9 2,205.4 5.7 4.0 2.9
Book Value % 2.6 9.0 7.6 7.8 Earnings Per Share ()
Stock Total Return % -36.4 -15.6 -7.6 10.1 2019 0.91 1.11 1.19 1.25 4.46
-7.3
2018 0.92 0.94 2.60 1.37 5.84
-14.4
2017 0.98 0.92 0.87 1.04 3.81
2017 2018 2019
2016 0.91 0.82 0.85 0.93 3.52
© Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and ®
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Research Methodology for Valuing Companies

Qualitative Equity Research Overview intangible assets, switching costs, network effect, cost Our model is divided into three distinct stages:
At the heart of our valuation system is a detailed projection advantage, and efficient scale.
of a company's future cash flows, resulting from our Stage I: Explicit Forecast
analysts' research. Analysts create custom industry and Companies with a narrow moat are those we believe In this stage, which can last five to 10 years, analysts
company assumptions to feed income statement, balance are more likely than not to achieve normalized excess make full financial statement forecasts, including items
sheet, and capital investment assumptions into our globally returns for at least the next 10 years. Wide-moat such as revenue, profit margins, tax rates, changes in
standardized, proprietary discounted cash flow, or DCF, companies are those in which we have very high working-capital accounts, and capital spending. Based
modeling templates. We use scenario analysis, in-depth confidence that excess returns will remain for 10 years, on these projections, we calculate earnings before
competitive advantage analysis, and a variety of other with excess returns more likely than not to remain for at interest, after taxes, or EBI, and the net new
analytical tools to augment this process. We believe this least 20 years. The longer a firm generates economic investment, or NNI, to derive our annual free cash flow
bottom-up, long-term, fundamentally based approach profits, the higher its intrinsic value. We believe low- forecast.
allows our analysts to focus on long-term business drivers, quality no-moat companies will see their normalized
which have the greatest valuation impact, rather than short- returns gravitate toward the firm's cost of capital more Stage II: Fade
term market noise. quickly than companies with moats. The second stage of our model is the period it will take
the company's return on new invested capital—the
Morningstar's equity research group (“we," "our") believes To assess the direction of the underlying competitive return on capital of the next dollar invested ("RONIC")—
that a company's intrinsic worth results from the future advantages, analysts perform ongoing assessments of to decline (or rise) to its cost of capital. During the Stage
cash flows it can generate. The Morningstar Rating for the moat trend. A firm's moat trend is positive in cases II period, we use a formula to approximate cash flows in
stocks identifies stocks trading at an uncertainty-adjusted where we think its sources of competitive advantage lieu of explicitly modeling the income statement,
discount or premium to their intrinsic worth—or fair value are growing stronger; stable where we don't anticipate balance sheet, and cash flow statement as we do in
estimate, in Morningstar terminology. Five-star stocks sell changes to competitive advantages over the next Stage I. The length of the second stage depends on the
for the biggest risk-adjusted discount to their fair values several years; or negative when we see signs of strength of the company's economic moat. We forecast
whereas 1-star stocks trade at premiums to their intrinsic deterioration. this period to last anywhere from one year (for
worth. companies with no economic moat) to 10–15 years or
All the moat and moat trend ratings undergo periodic more (for wide-moat companies). During this period,
Four key components drive the Morningstar rating: (1) our review and any changes must be approved by the cash flows are forecast using four assumptions: an
assessment of the firm's economic moat, (2) our estimate of Morningstar Economic Moat Committee, comprised of average growth rate for EBI over the period, a
the stock's fair value, (3) our uncertainty around that fair senior members of Morningstar's equity research normalized investment rate, average return on new
value estimate and (4) the current market price. This department. invested capital, or RONIC, and the number of years
process ultimately culminates in our single-point star rating. until perpetuity, when excess returns cease. The
2. Estimated Fair Value investment rate and return on new invested capital
1. Economic Moat Combining our analysts' financial forecasts with the decline until the perpetuity stage is reached. In the case
The concept of an economic moat plays a vital role not firm's economic moat helps us assess how long returns of firms that do not earn their cost of capital, we
only in our qualitative assessment of a firm's long-term on invested capital are likely to exceed the firm's cost of assume marginal ROICs rise to the firm's cost of capital
investment potential, but also in the actual calculation capital. Returns of firms with a wide economic moat (usually attributable to less reinvestment), and we may
of our fair value estimates. An economic moat is a rating are assumed to fade to the perpetuity period over truncate the second stage.
structural feature that allows a firm to sustain excess a longer period of time than the returns of narrow-moat
profits over a long period of time. We define excess firms, and both will fade slower than no-moat firms, Stage III: Perpetuity
economic profits as returns on invested capital (or ROIC) increasing our estimate of their intrinsic value. Once a company's marginal ROIC hits its cost of capital,
over and above our estimate of a firm's cost of capital, we calculate a continuing value, using a standard
or weighted average cost of capital (or WACC). Without perpetuity formula. At perpetuity, we assume that any
a moat, profits are more susceptible to competition. We growth or decline or investment in the business neither
have identified five sources of economic moats: creates nor destroys value and that any new investment
provides a return in line with estimated WACC.
Morningstar Research Methodology for Valuing Companies Because a dollar earned today is worth more than a
dollar earned tomorrow, we discount our projections of
cash flows in stages I, II, and III to arrive at a total
present value of expected future cash flows. Because we
are modeling free cash flow to the firm—representing cash
available to provide a return to all capital providers—we
discount future cash flows using the WACC, which is a
weighted average of the costs of equity, debt, and preferred
stock (and any other funding sources), using expected
future proportionate long-term market-value weights.
?

3. Uncertainty Around That Fair Value Estimate Morningstar Equity Research Star Rating Methodology
Morningstar's Uncertainty Rating captures a range of likely
potential intrinsic values for a company and uses it to
assign the margin of safety required before investing, which
in turn explicitly drives our stock star rating system. The
Uncertainty Rating represents the analysts' ability to bound
the estimated value of the shares in a company around the
fair value estimate, based on the characteristics of the
business underlying the stock, including operating and
financial leverage, sales sensitivity to the overall
economy, product concentration, pricing power, and
other company-specific factors.
Analysts consider at least two scenarios in addition to

their base case: a bull case and a bear case.
Assumptions are chosen such that the analyst believes
there is a 25% probability that the company will perform
better than the bull case, and a 25% probability that the
company will perform worse than the bear case. The
distance between the bull and bear cases is an
important indicator of the uncertainty underlying the
fair value estimate.
Our recommended margin of safety widens as our

uncertainty of the estimated value of the equity
increases. The more uncertain we are about the
estimated value of the equity, the greater the discount
we require relative to our estimate of the value of the
firm before we would recommend the purchase of the Morningstar Star Rating for Stocks The Morningstar Star Ratings for stocks are defined below:
shares. In addition, the uncertainty rating provides Once we determine the fair value estimate of a stock, we
guidance in portfolio construction based on risk compare it with the stock's current market price on a daily QQQQQ We believe appreciation beyond a fair risk-
tolerance. basis, and the star rating is automatically re-calculated at adjusted return is highly likely over a multiyear time frame.
the market close on every day the market on which the The current market price represents an excessively
Our uncertainty ratings for our qualitative analysis are stock is listed is open. pessimistic outlook, limiting downside risk and maximizing
low, medium, high, very high, and extreme. Please note, there is no predefined distribution of stars. upside potential.
That is, the percentage of stocks that earn 5 stars can
× Low–margin of safety for 5-star rating is a 20% discount fluctuate daily, so the star ratings, in the aggregate, can QQQQ We believe appreciation beyond a fair risk-
and for 1-star rating is 25% premium. serve as a gauge of the broader market's valuation. When adjusted return is likely.
× Medium–margin of safety for 5-star rating is a 30% there are many 5-star stocks, the stock market as a whole is
discount and for 1-star rating is 35% premium. more undervalued, in our opinion, than when very few QQQ Indicates our belief that investors are likely to
× High–margin of safety for 5-star rating is a 40% discount companies garner our highest rating. receive a fair risk-adjusted return (approximately cost of
and for 1-star rating is 55% premium. equity).
× Very High–margin of safety for 5-star rating is a 50% We expect that if our base-case assumptions are true the
discount and for 1-star rating is 75% premium. market price will converge on our fair value estimate over QQ We believe investors are likely to receive a less than
× Extreme–margin of safety for 5-star rating is a 75% time, generally within three years (although it is impossible fair risk-adjusted return.
discount and for 1-star rating is 300% premium. to predict the exact time frame in which market prices may
adjust). Q Indicates a high probability of undesirable risk-adjusted
4. Market Price returns from the current market price over a multiyear time
The market prices used in this analysis and noted in the Our star ratings are guideposts to a broad audience and frame, based on our analysis. The market is pricing in an
report come from exchange on which the stock is listed, individuals must consider their own specific investment excessively optimistic outlook, limiting upside potential and
which we believe is a reliable source. goals, risk tolerance, tax situation, time horizon, income leaving the investor exposed to Capital loss.
needs, and complete investment portfolio, among other
For more details about our methodology, please go to factors.
https://shareholders.morningstar.com.
?

Other Definitions quantitative report and the quantitative ratings, there is no Value Estimate, current market price, and the Quantitative
one analyst in which a given report is attributed to; Uncertainty Rating. The rating is expressed as 1-Star, 2-Star,
Last Price: Price of the stock as of the close of the market however, Mr. Lee Davidson, Head of Quantitative Research 3-Star, 4-Star, and 5-Star.
of the last trading day before date of the report. for Morningstar, Inc., is responsible for overseeing the
methodology that supports the quantitative equity ratings Q: the stock is overvalued with a reasonable margin of
Stewardship Rating: Represents our assessment of used in this report. As an employee of Morningstar, Inc., safety.
management's stewardship of shareholder capital, with Mr. Davidson is guided by Morningstar, Inc.'s Code of Ethics Log (Quant FVE/Price)<–1*Quantitative Uncertainty
particular emphasis on capital allocation decisions. Analysts and Personal Securities Trading Policy in carrying out his
consider companies' investment strategy and valuation, responsibilities. QQ: the stock is somewhat overvalued.
financial leverage, dividend and share buyback policies, Log (Quant FVE/Price) between (–1*Quantitative
execution, compensation, related party transactions, and Quantitative Equity Ratings Uncertainty, –0.5*Quantitative Uncertainty)
accounting practices. Corporate governance practices are Morningstar's quantitative equity ratings consist of:
only considered if they've had a demonstrated impact on (i) Quantitative Fair Value Estimate QQQ: the stock is approximately fairly valued.
shareholder value. Analysts assign one of three ratings: (ii) Quantitative Star Rating Log (Quant FVE/Price) between (–0.5*Quantitative
"Exemplary," "Standard," and "Poor." Analysts judge (iii) Quantitative Uncertainty Uncertainty, 0.5*Quantitative Uncertainty)
stewardship from an equity holder's perspective. Ratings (iv) Quantitative Economic Moat
are determined on an absolute basis. Most companies will (v) Quantitative Financial Health QQQQ: the stock is somewhat undervalued.
receive a Standard rating, and this is the default rating in (collectively the "Quantitative Ratings"). Log (Quant FVE/Price) between (0.5*Quantitative
the absence of evidence that managers have made Uncertainty, 1*Quantitative Uncertainty)
exceptionally strong or poor capital allocation decisions. The Quantitative Ratings are calculated daily and derived
from the analyst-driven ratings of a company's peers as QQQQQ: the stock is undervalued with a reasonable
Quantitative Valuation: Using the below terms, intended to determined by statistical algorithms. Morningstar, Inc. margin of safety. Log (Quant FVE/Price) >1*Quantitative
denote the relationship between the security's Last Price ("“Morningstar," "we," "our") calculates Quantitative Uncertainty
and Morningstar's quantitative fair value estimate for that Ratings for companies whether it already provides analyst
security. ratings and qualitative coverage. In some cases, the Quantitative Uncertainty: Intended to represent
Quantitative Ratings may differ from the analyst ratings Morningstar's level of uncertainty about the accuracy of the
× Undervalued: Last Price is below Morningstar's because a company's analyst-driven ratings can quantitative fair value estimate. Generally, the lower the
quantitative fair value estimate. significantly differ from other companies in its peer group. quantitative Uncertainty, the narrower the potential range
× Fairly Valued: Last Price is in line with Morningstar's of outcomes for that particular company. The rating is
quantitative fair value estimate. Quantitative Fair Value Estimate: Intended to represent expressed as Low, Medium, High, Very High, and Extreme.
× Overvalued: Last Price is above Morningstar's Morningstar's estimate of the per share dollar amount that
quantitative fair value estimate. a company's equity is worth today. Morningstar calculates × Low: the interquartile range for possible fair values is less
the quantitative fair value estimate using a statistical model than 10%.
Risk Warning derived from the fair value estimate Morningstar's equity × Medium: the interquartile range for possible fair values is
Please note that investments in securities are subject to analysts assign to companies. Please go to less than 15% but greater than 10%.
market and other risks and there is no assurance or https://shareholders.morningstar.com for information about × High: the interquartile range for possible fair values is
guarantee that the intended investment objectives will be fair value estimates Morningstar's equity analysts assign to less than 35% but greater than 15%.
achieved. Past performance of a security may or may not be companies. × Very High: the interquartile range for possible fair values
sustained in future and is no indication of future is less than 80% but greater than 35%.
performance. A security investment return and an investor's Quantitative Economic Moat: Intended to describe the × Extreme: the interquartile range for possible fair values is
principal value will fluctuate so that, when redeemed, an strength of a firm's competitive position. It is calculated greater than 80%.
investor's shares may be worth more or less than their using an algorithm designed to predict the Economic Moat
original cost. A security's current investment performance rating a Morningstar analyst would assign to the stock. The Quantitative Financial Health: Intended to reflect the
may be lower or higher than the investment performance rating is expressed as Narrow, Wide, or None. probability that a firm will face financial distress in the near
noted within the report. Morningstar's Uncertainty Rating future. The calculation uses a predictive model designed to
serves as a useful data point with respect to sensitivity × Narrow: assigned when the probability of a stock anticipate when a company may default on its financial
analysis of the assumptions used in our determining a fair receiving a "Wide Moat" rating by an analyst is greater obligations. The rating is expressed as Weak, Moderate,
value price. than 70% but less than 99%. and Strong.
× Wide: assigned when the probability of a stock receiving
Quantitative Equity Reports Overview a "Wide Moat" rating by an analyst is greater than 99%. × Weak: assigned when Quantitative Financial Health <0.2
The quantitative report on equities consists of data, × None: assigned when the probability of an analyst × Moderate: assigned when Quantitative Financial Health
statistics and quantitative equity ratings on equity receiving a "Wide Moat" rating by an analyst is less than is between 0.2 and 0.7
securities. Morningstar, Inc.'s quantitative equity ratings are 70%. × Strong: assigned when Quantitative Financial Health >0.7
forward looking and are generated by a statistical model
that is based on Morningstar Inc.'s analyst-driven equity Quantitative Star Rating: Intended to be the summary
ratings and quantitative statistics. Given the nature of the rating based on the combination of our Quantitative Fair
?

Other Definitions
Last Close: Price of the stock as of the close of the market

of the last trading day before date of the report.
Quantitative Valuation: Using the below terms, intended to

denote the relationship between the security's Last Price
and Morningstar's quantitative fair value estimate for that
security.
× Undervalued: Last Price is below Morningstar's

quantitative fair value estimate.
× Fairly Valued: Last Price is in line with Morningstar's
× Overvalued: Last Price is above Morningstar's
This Report has not been made available to the issuer of the
security prior to publication.
Risk Warning
Please note that investments in securities are subject to
market and other risks and there is no assurance or
guarantee that the intended investment objectives will be
achieved. Past performance of a security may or may not be
sustained in future and is no indication of future
performance. A security investment return and an investor's
principal value will fluctuate so that, when redeemed, an
investor's shares may be worth more or less than their
original cost. A security's current investment performance
may be lower or higher than the investment performance
noted within the report.
The quantitative equity ratings are not statements of fact.

Morningstar does not guarantee the completeness or
accuracy of the assumptions or models used in determining
the quantitative equity ratings. In addition, there is the risk
that the price target will not be met due to such things as
unforeseen changes in demand for the company's products,
changes in management, technology, economic
development, interest rate development, operating and/or
material costs, competitive pressure, supervisory law,
exchange rate, and tax rate. For investments in foreign
markets there are further risks, generally based on
exchange rate changes or changes in political and social
conditions.
A change in the fundamental factors underlying the

quantitative equity ratings can mean that the valuation is
subsequently no longer accurate.
For more information about Morningstar's quantitative

methodology, please visit
http://global.morningstar.com/equitydisclosures.
?

21:48, UTC 05:42, UTC
General Disclosure
The analysis within this report is prepared by the person
(s) noted in their capacity as an analyst for Morningstar’s
equity research group. The equity research group
consists of various Morningstar, Inc. subsidiaries
(“Equity Research Group)”. In the United States, that
subsidiary is Morningstar Research Services LLC, which
is registered with and governed by the U.S. Securities
and Exchange Commission.
The opinions expressed within the report are given in

good faith, are as of the date of the report and are
subject to change without notice. Neither the analyst
nor Equity Research Group commits themselves in
advance to whether and in which intervals updates to
the report are expected to be made. The written analysis
and Morningstar Star Rating for stocks are statements the Report and are subject to change. While financial situation or particular needs of any specific
of opinions; they are not statements of fact. Morningstar has obtained data, statistics and recipient. This publication is intended to provide
information from sources it believes to be reliable, information to assist institutional investors in making
The Equity Research Group believes its analysts make Morningstar does not perform an audit or seeks their own investment decisions, not to provide
a reasonable effort to carefully research information independent verification of any of the data, statistics, investment advice to any specific investor. Therefore,
contained in the analysis. The information on which the and information it receives. investments discussed and recommendations made
analysis is based has been obtained from sources herein may not be suitable for all investors: recipients
believed to be reliable such as, for example, the The quantitative equity ratings are not a market call, must exercise their own independent judgment as to
company’s financial statements filed with a regulator, and do not replace the User or User’s clients from the suitability of such investments and recommendations
company website, Bloomberg and any other the conducting their own due-diligence on the security. The in the light of their own investment objectives,
relevant press sources. Only the information obtained quantitative equity rating is not a suitability experience, taxation status and financial position.
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Morningstar Equity Analyst Report | Report as of 01 Apr 2020 11:51, UTC | Page 1 of 17

Magellan Midstream Partners LP MMP (XNYS)

Morningstar Pillars Analyst Quantitative Important Disclosure:

Magellan Midstream Partners LP MMP (XNYS)

Magellan Midstream Partners LP MMP (XNYS)

Magellan Midstream Partners LP MMP (XNYS)

Magellan Midstream Partners LP MMP (XNYS)

see this leading to an industry-leading cost of capital that

Magellan Midstream Partners LP MMP (XNYS)

teams and corporate boardrooms to take a new approach.

Magellan Midstream Partners LP MMP (XNYS)

Magellan Midstream Partners LP MMP (XNYS)

expected to slow. Magellan EBITDA grew on average 12%

Magellan Midstream Partners LP MMP (XNYS)

From a contract perspective, between 75% and 87% of

Permian Oil Differentials Have Blown Out Again;

Magellan Midstream Partners LP MMP QQQQQQ 01 Apr 2020 02:00 UTC

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

Analysts consider at least two scenarios in addition to

Our recommended margin of safety widens as our

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

Last Close: Price of the stock as of the close of the market

Quantitative Valuation: Using the below terms, intended to

× Undervalued: Last Price is below Morningstar's

The quantitative equity ratings are not statements of fact.

A change in the fundamental factors underlying the

For more information about Morningstar's quantitative

Magellan Midstream Partners LP MMP (XNYS)

The opinions expressed within the report are given in

Magellan Midstream Partners LP MMP (XNYS)

Magellan Midstream Partners LP MMP (XNYS)

SEBI or any other legal/regulatory body. Morningstar

The Research Analyst has not served as an officer,

*The Conflicts of Interest disclosure above also applies

For recipients in Japan: The Report is distributed by

For recipients in Singapore: This Report is

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