Units of Magellan Midstream Partners, L.P. (MMP) hit a 52-week high of $41.51 yesterday (Tuesday). The master limited partnership (MLP) has seen its unit price climb 36% since April, as investors have been buying shares of the oil and gas transporter for its attractive distribution payout (currently yielding 7.0%). The turnaround in fuel prices amid recent optimism about economic recovery have added to this positive sentiment.

We currently have a Neutral recommendation on the stock. The economic downturn and the resultant commodity-price weakness, coupled with reduced access to the credit markets, led to lower spending by consumers and businesses on transportation fuels such as gasoline, aviation fuel and diesel. This translated into less transportation volumes for pipeline operators like Magellan, cutting away at its cash flows and distributions. Weighed down by these factors, the partnership reported weak third-quarter earnings, notwithstanding the record results from its terminals segment and contribution from the recent expansion projects.

Tulsa, Oklahoma-based Magellan is an MLP that owns and operates a diversified portfolio of energy infrastructure assets. The partnership primarily transports, stores, and distributes refined petroleum products and, to a lesser extent, ammonia. In 2008, the partnership’s pipeline volumes comprised 52% gasoline, 39% distillates (which include diesel fuels and heating oil) and 9% Liquefied Petroleum Gas (LPG) and aviation fuel. Magellan conducts its operations in three segments: Petroleum Products Pipeline System, Petroleum Products Terminals, and Ammonia Pipeline System.

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