Units of MPLX (MPLX 0.75%) have soared more than 20% since bottoming out last fall, rising from below $50 to around $60. Several factors have helped fuel the surge in the master limited partnership's (MLP) unit price, including higher oil prices and its expansion initiatives.
Here's a look at whether the MLP has the fuel to reach $100.
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The steady growth should continue
MPLX is coming off another solid year. The MLP generated over $7 billion of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), up nearly 4% from 2024's level. That's at the low end of its target of delivering mid-single-digit adjusted EBITDA growth.
The pipeline company has plenty of fuel to grow within that target range in the coming years. It invested $5.5 billion in growth initiatives last year (acquisitions and growth capital projects) and plans to spend another $2.4 billion in growth capital this year. MPLX has a long list of expansion projects under construction that should come online through the end of the decade.
NYSE: MPLX
Key Data Points
If MPLX grows its earnings at 5% per year, its unit price could reach $100 within a decade, assuming no change in its valuation multiple.
Two additional fuel sources
MPLX could grow its earnings per unit even faster by continuing to repurchase units. Last year, the MLP completed $400 million of repurchases. Over the past five years, the company has retired nearly 2% of its outstanding units, more than offsetting the dilution from newly issued units. Future repurchases could enable MPLX to grow earnings per unit faster, potentially driving higher price appreciation.
Another potential upside catalyst is changing its corporate structure. MLPs trade at much lower valuation multiples than pipeline corporations due to the added complexity of Schedule K-1 Federal tax forms. Additionally, MLPs are ineligible for inclusion in major market indexes such as the S&P 500. If MPLX transitions to a corporation, it would likely trade at a higher valuation, putting its dividend yield on a more comparable level to pipeline stocks. For example, MPLX currently trades at a distribution yield of more than 7%. That's much higher than the dividend yields of large-scale pipeline corporations Williams, Kinder Morgan, and Oneok, which range between 2.8% to 5.2%.
It could take MPLX a while to reach $100
MPLX certainly has the fuel to eventually reach $100 per unit if it continues to grow its earnings at a mid-single-digit rate. However, it would likely take a decade to reach that level at its current valuation multiple and unit repurchase rate, unless it changes its corporate structure. While a significant surge in its unit price seems unlikely, investors can still collect the MLP's lucrative distribution, which adds to its total return.
