DCP Midstream, LP (DCP - Free Report) is set to release second-quarter 2020 results after the closing bell on Wednesday, Aug 5. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of 21 cents per share on revenues of $1.5 billion.
Let’s delve into the factors that might have influenced the energy pipeline partnership’s performance in the June quarter. But it’s worth taking a look at DCP Midstream’s previous-quarter performance first.
Highlights of Q1 Earnings & Surprise History
In the last reported quarter, the Denver, CO-based integrated midstream provider beat the consensus mark on meaningful cost reductions and strong NGL pipeline throughput. DCP Midstream reported adjusted net income per unit of 52 cents, 10 cents higher than the Zacks Consensus Estimate. However, the partnership’s quarterly revenues of $1.7 billion missed the Zacks Consensus Estimate of $2 billion on account of unfavorable commodity prices.
As far as earnings surprises are concerned, DCP Midstream beat the Zacks Consensus Estimate in three of the last four quarters and missed in the other, delivering an earnings surprise of 17.20%, on average. This is depicted in the graph below:
Trend in Estimate Revision
The Zacks Consensus Estimate for second-quarter bottom line has been revised 10.5% upward in the last seven days. However, the estimated figure indicates 51.2% deterioration year over year. The Zacks Consensus Estimate for revenues, meanwhile, is $1.5 billion, suggesting a 19.1% decline year over year.
Factors to Consider This Quarter
While pipeline entities like DCP Midstream have a lower correlation to oil and gas prices compared to its peers, the energy sector hasn’t been immune to the coronavirus-induced downturn. With E&P operators pulling back activities and curtailing production in response to sharply lower commodity pricing and demand, DCP Midstream faces a potential decline in volumes through its facilities, contributing to expectations for lower profits. The partnership, on its first-quarter conference call, already warned about lower volumes, with the second and third quarters being the worst casualties. As proof of a weak business environment, the Zacks Consensus Estimate for DCP Midstream’s natural gas liquids pipeline throughput for the second quarter is pegged at 576,600 barrels per day. A year ago, the throughput was 637,000 barrels per day.
However, as a counter to these negatives, DCP Midstream has also done a fairly admirable job at reducing costs. DCP Midstream’s cash outflows as capital expenditure continue to fall as it reins in spending levels. Apart from significant capital cuts, the partnership should realize sizeable savings from halving the distribution. All this is expected to have pushed DCP Midstream’s second-quarter earnings and cash flows higher.
What Does Our Model Say?
The proven Zacks model does not conclusively show that DCP Midstream is likely to beat estimates in the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, for this company is -9.86%.
Zacks Rank: DCP Midstream has a Zacks Rank of 3.
Stocks to Consider
While earnings beat looks uncertain for DCP Midstream, here are some firms from the energy space you may want to consider on the basis of our model:
USA Compression Partners, LP (USAC - Free Report) has an Earnings ESP of +25% and a Zacks Rank #1. The firm is scheduled to release earnings on Aug 4.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Bonanza Creek Energy, Inc. (BCEI - Free Report) has an Earnings ESP of +13.66% and is Zacks #1 Ranked. The firm is scheduled to release earnings on Aug 6.
NOW Inc. (DNOW - Free Report) has an Earnings ESP of +3.04% and is Zacks #3 Ranked. The firm is scheduled to release earnings on Aug 5.
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