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MPLX's Shares Jumped 14.5% in March Thanks to a New Aquisition

By Tyler Crowe - Apr 11, 2016 at 7:55AM

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Investors were pretty excited to see that MPLX was able to do a large acquisition this past month after stating that growth could be difficult to do back in February.

Image source: MPLX investor presentation.

What: Shares of MPLX (MPLX 0.48%) climbed by 14.5% in March. The largest reason for the gains came when it announced that it had acquired assets from its parent company, Marathon Petroleum (MPC 2.64%).

So what: There have been a lot of questions surrounding companies in the master limited partnership space. After a couple of years of falling oil prices, we're starting to find out that yes, these companies do experience some of the ill effects. To make things even harder for MPLX specifically is that one of the company's sources of capital -- equity issuance -- became much more expensive as the company's shares declined rapidly over the past year or so. This point really came to a head in February, when the company lowered its dividend guidance, as CEO Gary Heminger said current stock prices made acquisitions prohibitively expensive right now. 

So it's a little surprising that a little less than a month later, the company has announced that it's completed a $600 million acquisition of Marathon Petroleum's inland marine business. MPLX was able to acquire the assets by selling shares directly back to Marathon Petroleum at a price of $26.09 per unit.

Now what: One of the big benefits for MPLX is that is has a very large and well-capitalized parent company that doesn't need to drop down assets to raise capital. In fact, Marathon Petroleum has gone so far as to say that is could potentially use its own capital to incubate growth projects for MPLX and then drop them down when the financing is there. However, the company isn't completely out of the woods yet. Its ability to generate operational profits is nowhere near adequate to meet its current debt levels, and it's still completely reliant on outside funding for its growth. Until the company can shore up its balance sheet and start to fund some of its growth from operational cash, it's probably best to sit on the sidelines for this one.

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Stocks Mentioned

MPLX LP Stock Quote
$29.00 (0.48%) $0.14
Marathon Petroleum Corporation Stock Quote
Marathon Petroleum Corporation
$87.94 (2.64%) $2.26

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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