MMP: JP Morgan likes these 2 high yield stocks
Magellan Midstream Partners, LP (MMP) is engaged in the transportation, storage and distribution of refined petroleum products and crude oil in the United States. It operates through the Refined Products and Crude Oil segments.
On the other hand, financial services holding company OneMain Holdings, Inc. (OMF) is engaged in consumer credit and insurance activities. The company originates, underwrites and manages personal loans secured by automobiles, other secured or unsecured.
Stock markets plummeted in the first half of 2022, marking their worst record performance since 1970. With more aggressive rate hikes expected in the coming months, recession fears are now rife and the overall economic outlook looks bleak . The US economy posted negative growth in the first quarter, and Atlanta’s GDPNow model expects slower growth also in the second trimester.
Amid market uncertainties, investing in dividends could be an ideal strategy to ensure a steady stream of income. Investor interest in dividend stocks is evident in iShares Core High Dividend ETFs (HDV) marginal year-to-date gains relative to broader market losses. JPMorgan Chase & Co. upgraded MMP shares from a “neutral” rating to an “overweight” rating rating and raised their target price for the company. Also, JP Morgan analyst Richard Shane maintained a buy rating for OMF.
MMP has lost slightly over the past year, while OMF has lost 32.4%. Additionally, MMP has lost 8% in the last month and gained 3.8% since the start of the year, while OMF has lost 10.5% in the last month and 23% since the start of the year. ‘year.
But which stock is a better buy? Let’s find out.
On May 5, 2022, Aaron Milford, recent CEO of MMP, said, “I am grateful for the opportunity to lead Magellan into the future and will continue to focus on the overarching goal of maximizing long-term value. term for investors, while maintaining our financial strength. position and a proven disciplined approach to meeting our nation’s critical energy needs for decades to come.
On the other hand, on May 3, 2022, OMF closed its second social bond issue, a $600 million ABS bond. This transaction aims to foster financial inclusion and provide loans to less fortunate borrowers residing in rural communities (75% of low-income borrowers with an annual net income of $50,000 or less).
Recent financial results
MMP’s total revenue increased 6.9% year over year to $674.70 million for the first quarter ended March 31, 2022. However, its net profit was at $165.50 million, down 25.2% year-over-year, while its EPS was $0.78, down 21.2% year-over-year . Also, its adjusted EBITDA fell 2.2% year over year to $336.60 million.
OMF’s net interest income increased 5.5% year-over-year to $870 million for the first quarter ended March 31, 2022. However, its net income was $301 million, down 27.1% year-over-year, while its EPS reached $2.36, down 22.9% year-over-year.
MMP has increased its dividend payouts for 20 consecutive years. Over the past three years, MMP’s dividend payouts have grown at a CAGR of 1.7%. While MMP’s four-year average dividend yield is 8.01%, its current dividend translates to a yield of 8.61%.
In contrast, OMF has increased its dividend distributions for two consecutive years. OMF’s four-year average dividend yield is 12.49%, and its current dividend translates to a yield of 9.87%.
Past and expected financial performance
MMP’s EPS has declined at a CAGR of 11.3% over the past three years. Analysts expect MMP’s revenue to grow 4.5% in the current year and 7.4% next year. The company’s EPS is expected to fall 4.7% in the current year and rise 9.9% next year. Additionally, its EPS is expected to grow 7.5% annually over the next five years.
On the other hand, OMF’s revenue and EPS grew at a CAGR of 11.3% and 37.9%, respectively, over the past three years. Analysts expect the company’s revenue to grow 11.2% in the current year and 3.4% next year. The company’s EPS is expected to decline 18.6% in the current year and grow 3.1% next year. In addition, its EPS is expected to grow 15.8% annually over the next five years.
MMP’s gross profit margin of 48.89% is lower than OMF’s 94.25%. Additionally, MMP’s 33.36% net profit margin is lower than OMF’s 36.74%.
However, the ROE and ROA of MMP are 43.01% and 6.86%, compared to 37.58% and 5.58% respectively for OMF.
In terms of forward P/E, MMP is currently trading at 11.47x, higher than OMF’s 4.42x. Additionally, MMP’s trailing 12-month P/S of 3.76x is 144.2% higher than OMF’s 1.54x.
So, OMF is the relatively affordable stock here.
OMF has an overall rating of B, which is equivalent to buying in our own POWR Rankings system. On the other hand, MMP has an overall rating of C, which translates to Neutral. POWR ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Both stocks have a B rating for quality. OMF’s trailing twelve month gross profit margin of 94.25% is 46.2% higher than the industry average of 64.46%. On the other hand, MMP’s gross profit margin of 48.89% over the last 12 months is 23.8% higher than the industry average of 39.51%.
OMF has a C rating for growth, consistent with stable revenue and EPS growth over the past few years and mixed performance in its most recently reported quarter. On the other hand, MMP has an F rating for growth, in line with its declining bottom line over the past few years.
Of the 46 shares of Consumer Financial Services industry, OMF is ranked #4. On the other hand, MMP is ranked No. 27 out of 34 stocks in the MLP – Oil and Gas industry.
Beyond what we’ve listed above, we’ve also rated stocks for value, momentum, stability, and sentiment. Click on here to view OMF ratings. Get all MMP ratings here.
MMP and OMF are JP Morgan’s picks for investors in the current market situation, thanks to their high dividend payouts and wide profit margins. However, OMF’s attractive valuations and higher dividend yield make it the best buy here.
Our research shows that the odds of success increase when investing in stocks with an overall buy or strong buy rating. See all the top-rated stocks in the consumer financial services sector here and MLPs – oil and gas industry here.
MMP shares were trading at $47.22 per share on Tuesday afternoon, down $0.96 (-1.99%). Year-to-date, the MMP has gained 5.99%, compared to a -19.13% rise in the benchmark S&P 500 over the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master’s degree in economics, she helps investors make informed investment decisions with her insightful commentary. After…