The ONEOK Partnership And Gulf Coast Projects Will Meet Growing LPG Demand

Key Takeaways

• MPLX's capital expansion in Natural Gas and NGL Services and partnerships are expected to enhance revenue, cash flow, and growth long-term.
  
• Sustained demand and increased distribution to unitholders highlight MPLX's growth and financial flexibility, supporting future earnings and distribution increases.
  
• High financial and operational risks arise from capital projects, joint ventures, regulatory shifts, and dependency on energy market conditions impacting revenue and profit forecasts.

Catalysts

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

• MPLX's significant capital investment in expanding its Natural Gas and NGL Services segment, with a $2 billion capital expenditure outlook for 2025 focusing on projects within this segment, is expected to yield mid-teen returns, enhancing revenue and extending the company's growth profile.
  
• The development of a Gulf Coast fractionation complex and export terminal, in partnership with ONEOK, aims to supply growing global demand for LPGs, projected to generate EBITDA starting in 2028 and subsequently ramping up, impacting MPLX's future earnings positively.
  
• The expansion of MPLX's natural gas processing and long-haul pipeline capacity, including new processing plants in the Permian and Marcellus basins and the extension of the BANGL Pipeline, is set to boost processing volumes and enhance revenue generation.
  
• Robust demand for MPLX's natural gas services, driven by factors like grid electrification and data center development, points to sustained growth in demand and supported revenue expansion, contributing to durable cash flow growth.
  
• MPLX's commitment to returning significant capital to unitholders, exemplified by the 12.5% increase in quarterly distribution, suggests ongoing enhancements in cash flow and earnings, alongside maintaining strong distribution coverage and financial flexibility to support future distribution increases.

MPLX Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MPLX's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 38.5% today to 37.1% in 3 years time.
• Analysts expect earnings to reach $5.1 billion (and earnings per share of $5.0) by about April 2028, up from $4.3 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, up from 11.1x today. This future PE is greater than the current PE for the US Oil and Gas industry at 10.9x.
• Analysts expect the number of shares outstanding to grow by 0.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.27%, as per the Simply Wall St company report.

MPLX Future Earnings Per Share Growth

Risks

• The ambitious capital expenditure plans, including the $2 billion earmarked for growth projects in 2025, increase financial risk, particularly if anticipated returns do not materialize within projected timeframes, impacting future earnings and cash flows.
  
• The substantial reliance on joint ventures and partnerships, such as with ONEOK, introduces execution and operational risks which could affect net margins if these collaborations fail to deliver expected synergies and efficiencies.
  
• The long lead times for major projects, such as the Gulf Coast fractionation complex expected to be operational by 2028-2029, might delay the anticipated revenue and EBITDA growth, potentially affecting financial projections and investor sentiment.
  
• The dependency on macroeconomic factors, including global energy demand and natural gas prices, poses a risk to MPLX's revenue streams, particularly if there are downturns in those areas that impact throughput and demand forecasts.
  
• MPLX’s strategy heavily relies on favorable market conditions for hydrocarbons, and any major regulatory shifts toward renewable energy could alter market dynamics and potentially decrease profitability and market position, thereby impacting future revenue growth.

Valuation

• The analysts have a consensus price target of $56.377 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 $45.03.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $13.8 billion, earnings will come to $5.1 billion, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 7.3%.
• Given the current share price of $46.68, the analyst price target of $56.38 is 17.2% higher.
• 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.