3 Solid Options Amid Refining & Marketing MLP Industry Tumult

The Zacks Oil and Gas - Refining & Marketing MLP industry faces notable challenges as gasoline demand continues its downward trajectory, falling around 5% nationally in Q3 2024. With fuel efficiency improvements, rising EV adoption, and changing consumer habits, retail fuel sales remain stagnant, pressuring long-term growth. At the same time, rising interest rates are increasing debt costs, making expansion and shareholder returns more difficult. Higher borrowing expenses could limit investment in infrastructure and acquisitions, slowing overall industry momentum. However, not all MLPs are equally affected. Companies with stable, fee-based revenue models, like Targa Resources TRGP, Global Partners LP GLP, and CrossAmerica Partners LP CAPL remain well-positioned. Their diversified operations, long-term contracts and infrastructure assets provide resilience against market volatility.Industry OverviewMaster limited partnerships (or MLPs) differ from regular stocks since interests in them are referred to as units, and unitholders (not shareholders) are partners in the business. Importantly, these low-risk hybrid entities bring together the tax benefits of a limited partnership with the liquidity of publicly traded securities that earn a stable income. The assets owned by these partnerships are typically oil and natural gas pipelines and storage/infrastructure facilities. The Zacks Oil and Gas - Refining & Marketing MLP industry is a sub-sector of this business model. These firms operate refined product terminals, storage facilities and transportation services. They are involved in selling refined petroleum products (including heating oil, gasoline, residual oil, jet fuel, etc.) and a plethora of non-energy materials (like asphalt, road salt, clay and gypsum).3 Trends Defining Oil and Gas - Refining & Marketing MLP Industry's FutureDeclining Fuel Demand Poses a Long-Term Challenge: The fuel industry is grappling with a continued decline in gasoline demand, which dropped roughly 5% nationally in Q3 2024. This trend, driven by higher fuel efficiency, electric vehicle adoption, and shifting consumer habits, threatens long-term growth for fuel retailers. Even same-store retail volume has remained essentially flat, highlighting the struggle to maintain sales in a weakening demand environment.Steady Income Amid Oil Market Uncertainty: In an unpredictable oil market, Master Limited Partnerships (MLPs) offer a reliable investment avenue. Specializing in pipelines and storage infrastructure, MLPs generate stable, fee-based revenue through long-term contracts. Their cash flows remain resilient, as many agreements follow a take-or-pay structure, ensuring income even when transportation volumes drop. With limited exposure to commodity price fluctuations and attractive dividend payouts, MLPs present a lower-risk option for investors seeking steady returns.Interest Rate Pressures and Higher Debt Costs: Rising interest rates are making debt more expensive, impacting companies with high capital expenditure needs like the ‘Oil and Gas - Refining & Marketing MLP’ operators. As borrowing costs rise, profitability could be squeezed, limiting the ability to fund growth initiatives or shareholder returns. Additionally, if capital markets tighten, securing financing for future projects could become more expensive, potentially slowing growth and impacting shareholder returns.Zacks Industry Rank Indicates Bearish OutlookThe Zacks Oil and Gas – Refining & Marketing MLP is a six-stock group within the broader Zacks Oil – Energy sector. The industry currently carries a Zacks Industry Rank #220, which places it in the bottom 11% of 248 Zacks industries.The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates fairly dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.Industry Outperforms Sector & S&P 500The Zacks Oil and Gas – Refining & Marketing MLP industry has fared better than the broader Zacks Oil - Energy Sector as well as the Zacks S&P 500 composite over the past year.The industry has gained 62.3% over this period compared to the broader sector’s marginal increase of 6.4%. Meanwhile, the S&P 500 has gone up 24.4%.One-Year Price PerformanceIndustry's Current ValuationSince midstream-focused oil and gas partnerships use fixed-rate debt for most of their borrowings, it makes sense to value them based on the EV/EBITDA (enterprise value/ earnings before interest tax depreciation and amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA) ratio, the industry is currently trading at 11.78X, significantly lower than the S&P 500’s 17.75X. It is, however, well above the sector’s trailing 12-month EV/EBITDA of 4.44X.Over the past five years, the industry has traded as high as 11.89X and as low as 5.78X, with a median of 9.01X, as the chart below shows.Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio (Past Five Years) 3 Stocks in FocusTarga Resources: It is a leading provider of integrated midstream services in North America. The Houston, TX-based operator primarily derives its revenues from gathering, compressing, treating, processing and selling natural gas. Targa Resources also provides services associated with natural gas liquids, including liquefied petroleum gas exporters, and crude oil.The 2025 Zacks Consensus Estimate for Houston, TX-based Targa Resources indicates 28.2% earnings per share growth over 2024. The firm, which sees a 33% year-over-year increase to its 2025 common dividend, has a Growth Score of B. Valued at around $45.9 billion, this Zacks Rank #3 (Hold) stock has surged 110.1% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here. Price and Consensus: TRGPGlobal Partners LP: It is a vertically integrated energy partnership focused on the distribution of gasoline, distillates, residual oil and renewable fuels, apart from owning several refined-petroleum-product terminals. Unlike most energy operators, which maintained their payout through the coronavirus-induced downturn, Global Partners continued to increase distributions.The 2025 Zacks Consensus Estimate for Waltham, MA-based firm indicates 17.8% year-over-year earnings per unit growth. Global Partners pays out 74 cents quarterly distribution ($2.96 per unit annually), which gives it a 4.9% yield at the current unit price. Valued at around $1 billion, the #3 Ranked GLP has gained some 25.9% in a year.Price and Consensus: GLPCrossAmerica Partners LP: Headquartered in Allentown, PA, wholesale distributor of motor fuels CrossAmerica Partners’ variable rate margins helped it offset the loss in volumes during the pandemic. Further, CAPL’s recent acquisitions of retail and wholesale assets provide it with a wider reach and scale.The 2025 Zacks Consensus Estimate for CrossAmerica Partners indicates 69.2% earnings per unit growth over 2024. CAPL has a market capitalization of $871.7 million. The midstream operator pays out 52.50 cents quarterly distribution ($2.10 per unit annually), which gives it a 9% yield at the current unit price. Boasting a Value Score of B, this Zacks Rank #3 partnership has gained 5.2% in a year.Price and Consensus: CAPL7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +24.3% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Targa Resources, Inc. (TRGP): Free Stock Analysis Report Global Partners LP (GLP): Free Stock Analysis Report CrossAmerica Partners LP (CAPL): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks