A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to look at a stable master limited partnership that has trounced the overall market over the past decade: Markwest Energy Partners LP (NYSE:MWE).
The Business:
Warren Buffett once said, “Never invest in a business you can’t understand.” This not only allows the investor to purchase a company with conviction, however also allows them to spot trends blind to unfamiliar eyes. With this in mind, investors in any company should fully understand the business model of the company. Markwest is a master limited partnership engaged in the gathering, processing, and transportation of natural gas and crude oil. Based on market capitalization, the company is valued at $7.87 billion. Because of the incredibly competitive nature of the industry, Markwest possesses a trailing twelve month profit margin of 7.98%.
Strengths:
1). Explosive Revenue Growth: In 2006, Markwest reported revenue of $576 million; in 2011, the company announced revenue of $1.50 billion, representing year over year annual growth of 21.35%, a solid trend that is expected to continue into the future, with projections placing 2014 revenue at $1.98 billion. This growth has been a result of aggressive expansion plans
2). Free Cash Flow Position: In 2011, the company generated over $300 million in distributable cash flow, a major upside for investors as the company has the financial security to reward investors
3). Institutional Vote of Confidence: 74.35% of shares outstanding are held by institutional investors, displaying the confidence some of largest investors in the world have in the company and its future
4). Dividend: Currently, Markwest pays out quarterly dividends of $0.82, which when annualized puts the dividend yield at 5.73%, a major advantage for long-term investors
5). Established Distribution Network: The company possesses processing and transportation locations throughout the United States, and with this established distribution network comes a greater level of predictability and security for investors
6). Accelerated Assets Growth: Total assets of the company have grown from nearly $3 billion in 2010 to currently $6.24 billion, and this trend of accelerated assets growth is extremely advantageous for investors
Weaknesses:
1). Net Debt: Despite possessing $415.06 million of cash and cash equivalents on their balance sheets, the company’s debt load of $2.52 billion results in a rather substantial net debt, a major downside for investors
2). High Valuation: At the moment, Markwest trades with a price to earnings ratio of 124.73, a price to book ratio of 4.59, and a price to sales ratio of 4.79, all of which indicate a company trading with a high valuation
Opportunities:
1). Dividend Growth: Since implementing their dividend program in 2002, Markwest has consistently raised their dividend payouts and is expected to continue this trend well into the future
2). Acquisitions: On Feb. 1, 2011 Markwest acquired the Langley processing plant, and further acquisitions could fuel growth and present opportunity to the company
3). Geographical Expansion: Substantial opportunity is presented in the Haynesville Shale, Eagle Ford Shale, and Barnett Shale, in addition to other major areas of possible opportunity throughout the United States, and any geographical expansion could fuel growth
