NGL And Pipeline Projects Will Strengthen Future Operations

Key Takeaways

• Strategic acquisitions and developments in key regions are expected to enhance revenue and EBITDA growth, supporting future cash flow and earnings.
  
• Investments in Gulf Coast facilities and production growth in advantageous basins should drive higher volumes and revenue, maintaining strong net margins.
  
• Heavy capital spending and dependency on key partnerships create potential financial risks, with volatility in commodities and rising interest rates posing additional challenges.

Catalysts

Owns and operates midstream energy infrastructure and logistics assets primarily in the United States.

• MPLX expects strategic acquisitions, such as full ownership of the BANGL NGL pipeline and an increased stake in the Matterhorn Express Pipeline, to be immediately accretive, enhancing its revenue and EBITDA growth prospects.
  
• The company is developing its NGL and natural gas value chains in strategic regions like the Permian, Marcellus, and Utica, with projects such as the Traverse natural gas pipeline and the Secretariat processing plant, likely driving future cash flow and earnings growth.
  
• MPLX aims to benefit from production growth in economically advantaged basins with low breakeven costs, which should support higher volumes and revenue growth while maintaining robust net margins.
  
• With strong customer demand for LNG and transportation fuels, MPLX's investments in the Gulf Coast fractionation and export facilities are positioned to capitalize on global market trends, boosting its revenue and operating income.
  
• MPLX plans to maintain a mid-single-digit growth rate by optimizing its asset footprint and capital spending, which should enhance its distributable cash flow and allow for potential increases in annual distributions and buybacks, positively impacting earnings per share.

MPLX Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MPLX's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 38.8% today to 36.9% in 3 years time.
• Analysts expect earnings to reach $5.2 billion (and earnings per share of $5.16) by about July 2028, up from $4.4 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.6x on those 2028 earnings, up from 12.0x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.93%, as per the Simply Wall St company report.

MPLX Future Earnings Per Share Growth

Risks

• MPLX's growth strategy involves significant capital expenditure, with $1.7 billion planned for 2025 alone. Any delays or inefficiencies in project execution could strain cash flows and impact growth projections.
  
• The company is heavily reliant on its strategic relationship with Marathon Petroleum Corporation for its Crude Oil and Products Logistics segment, which accounts for around two-thirds of EBITDA. Any changes in MPC’s operations could affect MPLX’s revenue stability.
  
• The macroeconomic environment for commodities remains volatile, potentially affecting natural gas prices and MPLX's revenue from the NGL and natural gas segments, despite currently high demand projections.
  
• MPLX’s expansion involves significant debt issuance, such as the $2 billion in senior notes issued in the quarter. Rising interest rates could increase the cost of debt servicing, impacting net margins and earnings.
  
• Although MPLX anticipates that future demand for NGL and natural gas will support planned projects, unforeseen geopolitical developments or shifts in energy policy could alter demand, affecting future revenue from these expansions.

Valuation

• The analysts have a consensus price target of $56.429 for MPLX based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $64.0, and the most bearish reporting a price target of just $51.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $14.0 billion, earnings will come to $5.2 billion, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 6.9%.
• Given the current share price of $51.77, the analyst price target of $56.43 is 8.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.