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What Awaits Holly Energy Partners (HEP) in Q3 Earnings?

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Holly Energy Partners, L.P. (HEP - Free Report) is set to release third-quarter 2020 results before the opening bell on Wednesday, Nov 4. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of 43 cents per share on revenues of $122 million.

Let’s delve into the factors that might have influenced the energy infrastructure provider’s performance in the September quarter. But it’s worth taking a look at Holly Energy Partners’ previous-quarter performance first.

Highlights of Q2 Earnings & Surprise History

In the last-reported quarter, the Dallas, TX-based partnership — sponsored by HollyFrontier Corporation (HFC - Free Report) — beat the consensus mark on lower costs and support from minimum volume commitment contracts. Holly Energy Partners had reported adjusted net income per unit of 48 cents, surpassing the Zacks Consensus Estimate of 29 cents. Moreover, revenues of $114.8 million generated by this owner and operator of a network of crude oil and refined products pipelines had come in above the Zacks Consensus Estimate of $105 million.

As far as earnings surprises are concerned, Holly Energy Partners beat the Zacks Consensus Estimate in three of the last four quarters and missed in the other, delivering an earnings surprise of 22.78%, on average. This is depicted in the graph below:

Holly Energy Partners, L.P. Price and EPS Surprise

Holly Energy Partners, L.P. Price and EPS Surprise

Holly Energy Partners, L.P. price-eps-surprise | Holly Energy Partners, L.P. Quote


Trend in Estimate Revision

The Zacks Consensus Estimate for third-quarter bottom line remained the same in the last seven days. However, the estimated figure indicates a 17.3% deterioration year over year. The Zacks Consensus Estimate for revenues, meanwhile, suggests a 10.2% decline from the year-ago period.

Factors to Consider This Quarter

While pipeline entities like Holly Energy Partners have a lower correlation to oil and gas prices compared to its peers, this energy sub-industry 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, Holly Energy Partners experienced a 26% year-over-year fall in overall crude and product pipeline volumes in the second quarter. This trend most likely continued in the third quarter as well due to a continued challenging environment. This might have impacted Holly Energy Partners’ revenues and cash flows.

However, the partnership’s minimum volume commitment provision is expected to have put a floor on its cash flows even in the face of the sharp drop in commodity prices. With 70% of Holly Energy Partners’ total revenues associated with long-term fee-based contracts and minimum volume commitments, the midstream partnership is relatively insulated from the broader energy weakness. This should allow the midstream company to hold up well despite declining production and lower demand.

What Does Our Model Say?

The proven Zacks model does not conclusively show that Holly Energy Partners is likely to beat estimates in the third 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: Holly Energy Partners has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 43 cents per share each.

Zacks Rank: Holly Energy Partners currently carries a Zacks Rank #2, which increases the predictive power of ESP. However, the partnership’s 0.00% ESP makes surprise prediction difficult for the stock this earnings season.

Stocks to Consider

While an earnings beat looks uncertain for Holly Energy Partners, here are two firms from the energy  space that you may want to consider on the basis of our model:

DCP Midstream, LP (DCP - Free Report) has an Earnings ESP of +4.77% and a Zacks Rank #1. The firm is scheduled to release earnings on Nov 4.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sunoco LP (SUN - Free Report) has an Earnings ESP of +1% and is Zacks #1 Ranked. The firm is scheduled to release earnings on Nov 4.

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