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Oil & Gas Pipeline Earnings Preview for Nov 2: TRP, SE, PAGP
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We are in the second half of the Q3 earnings season, with 130 S&P 500 members coming up with results this week.
Picture Emerging Thus Far
We now have Q3 results from 291 S&P 500 members that combined account for 68.5% of the index’s total market capitalization. Total earnings for these companies are up 2.2% from the same period last year on 1.3% higher revenues, with 73.5% positive earnings surprises and 57.4% beating revenue estimates. (Data from the Earnings Preview dated Oct 28, 2016).
A 2.2% quarterly earnings growth may look quite insignificant but what’s encouraging is that the figure is a considerable improvement over the ones observed over the previous five quarters. Should the positive trend continue throughout the quarter, it will represent the first positive growth for the S&P 500 index after five quarters of back-to-back declines.
Energy: A Drag but Not as Bad as Thought
Expectedly, the ‘Oils/Energy’ sector has been a big drag on the aggregate growth picture. For the 50% sector components on the S&P 500 index that have reported Q3 results – including behemoths like Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) – total earnings are down 58.8% on 15.1% lower revenues.
However, despite being the largest decliner among major sectors, an overwhelming 77.8% Oils/Energy companies have beaten earnings estimates – though undoubtedly aided by low expectations.
Oil & Gas Pipeline Partnerships: Mixed Sentiments Prevailing
The Pipeline Business: The assets that these firms own – oil and natural gas pipelines and storage facilities – typically bring in stable fee-based revenues and have limited, if any, direct commodity-price exposure. This enables them to pay out fairly growing dividends/distributions.
Bullish Case: The collapse in crude has markedly reduced the average price of U.S. gasoline, the most widely used petroleum product. This has resulted in record gasoline volumes across pipeline systems and a boon for operators whose compensation is based on the quantity moving through their system.
Given the current weaknesses in petroleum stocks, oil and gas pipeline companies are probably the best investments in the sector. They also offer liquidity and tax benefits, which add to their appeal. This is why these stocks would make good additions to your portfolio.
Bearish Case: Considering the potential tax advantages, coupled with their safe and sustainable dividend payouts, pipeline operators should have been the ‘safe haven investment’ for energy investors during the ongoing oil rout. However, the more than two-year long crude price crash has been steadily diminishing the attractiveness of this asset class on the whole.
Not only has the carnage eliminated years of gains associated with the shale revolution but also wiped out billions in market value from some of the country’s top energy companies.
When commodity prices started their downward journey in the middle of 2014, midstream operators – with relatively consistent and predictable cash flows under long-term contracts – were fairly unscathed. However, with more and more industry participants viewing the oil glut (responsible for the price plunge) as a long-term phenomenon as opposed to a passing trend, the ongoing crisis has eaten into the demand for pipelines and processing plants.
Stocks to Watch for Earnings on Nov 2
Let’s see what’s in store for three such oil and gas pipeline companies expected to come up with third-quarter numbers on Wednesday, Nov 2. Let’s take a look at how things are shaping up at their end.
A major North American energy infrastructure company, TransCanada Corp. (TRP - Free Report) is expected to report results before the opening bell.
In the preceding three-month period, the Calgary, Alberta-based oil and natural gas transmission network owner met earnings estimates, helped by its high-quality portfolio of midstream energy assets.
But coming to earnings surprise history, the company has a mixed record: it beat/met estimates in two of the last four quarters, resulting in an average positive surprise of 2.02%.
An earnings beat is uncertain for TransCanada this time around. This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat earnings. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
For the quarter to be reported, TransCanada has an Earnings ESP of 0.00%, while it carries a Zacks Rank #4.
Spectra Energy Corp. (SE - Free Report) is another energy firm to report results on Wednesday morning.
Headquartered in Houston, TX, Spectra Energy operates more than 22,000 miles of natural gas, natural gas liquids, and crude oil pipelines. However, the company doesn’t exactly have a great track record when it comes to earnings, as it has missed estimates in the last three quarters.
But with an earnings ESP of +8.00% and Zacks Rank #3, our proven model shows that an earnings beat is likely for Spectra Energy in the to-be-reported quarter. (Read more: Spectra Energy Q3 Earnings: Is a Beat in the Cards?)
Finally, we have midstream partnership Plains GP Holdings L.P. (PAGP - Free Report) coming up with third-quarter numbers after market close.
Houston, TX-based Plains GP Holdings L.P., which is involved in the transportation, storage, terminaling, and marketing of crude oil and refined products, has a dismal track of having missed estimates in each of the last four quarters.
The upcoming quarterly numbers could be more of the same as our proven model shows that the partnership does not have the right combination the two key components. While a Zacks Rank #1 increases the predictive power of ESP, the company’s ESP of -40.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>
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Oil & Gas Pipeline Earnings Preview for Nov 2: TRP, SE, PAGP
We are in the second half of the Q3 earnings season, with 130 S&P 500 members coming up with results this week.
Picture Emerging Thus Far
We now have Q3 results from 291 S&P 500 members that combined account for 68.5% of the index’s total market capitalization. Total earnings for these companies are up 2.2% from the same period last year on 1.3% higher revenues, with 73.5% positive earnings surprises and 57.4% beating revenue estimates. (Data from the Earnings Preview dated Oct 28, 2016).
A 2.2% quarterly earnings growth may look quite insignificant but what’s encouraging is that the figure is a considerable improvement over the ones observed over the previous five quarters. Should the positive trend continue throughout the quarter, it will represent the first positive growth for the S&P 500 index after five quarters of back-to-back declines.
Energy: A Drag but Not as Bad as Thought
Expectedly, the ‘Oils/Energy’ sector has been a big drag on the aggregate growth picture. For the 50% sector components on the S&P 500 index that have reported Q3 results – including behemoths like Exxon Mobil Corp. (XOM - Free Report) and Chevron Corp. (CVX - Free Report) – total earnings are down 58.8% on 15.1% lower revenues.
However, despite being the largest decliner among major sectors, an overwhelming 77.8% Oils/Energy companies have beaten earnings estimates – though undoubtedly aided by low expectations.
Oil & Gas Pipeline Partnerships: Mixed Sentiments Prevailing
The Pipeline Business: The assets that these firms own – oil and natural gas pipelines and storage facilities – typically bring in stable fee-based revenues and have limited, if any, direct commodity-price exposure. This enables them to pay out fairly growing dividends/distributions.
Bullish Case: The collapse in crude has markedly reduced the average price of U.S. gasoline, the most widely used petroleum product. This has resulted in record gasoline volumes across pipeline systems and a boon for operators whose compensation is based on the quantity moving through their system.
Given the current weaknesses in petroleum stocks, oil and gas pipeline companies are probably the best investments in the sector. They also offer liquidity and tax benefits, which add to their appeal. This is why these stocks would make good additions to your portfolio.
Bearish Case: Considering the potential tax advantages, coupled with their safe and sustainable dividend payouts, pipeline operators should have been the ‘safe haven investment’ for energy investors during the ongoing oil rout. However, the more than two-year long crude price crash has been steadily diminishing the attractiveness of this asset class on the whole.
Not only has the carnage eliminated years of gains associated with the shale revolution but also wiped out billions in market value from some of the country’s top energy companies.
When commodity prices started their downward journey in the middle of 2014, midstream operators – with relatively consistent and predictable cash flows under long-term contracts – were fairly unscathed. However, with more and more industry participants viewing the oil glut (responsible for the price plunge) as a long-term phenomenon as opposed to a passing trend, the ongoing crisis has eaten into the demand for pipelines and processing plants.
Stocks to Watch for Earnings on Nov 2
Let’s see what’s in store for three such oil and gas pipeline companies expected to come up with third-quarter numbers on Wednesday, Nov 2. Let’s take a look at how things are shaping up at their end.
A major North American energy infrastructure company, TransCanada Corp. (TRP - Free Report) is expected to report results before the opening bell.
In the preceding three-month period, the Calgary, Alberta-based oil and natural gas transmission network owner met earnings estimates, helped by its high-quality portfolio of midstream energy assets.
But coming to earnings surprise history, the company has a mixed record: it beat/met estimates in two of the last four quarters, resulting in an average positive surprise of 2.02%.
An earnings beat is uncertain for TransCanada this time around. This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat earnings. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
For the quarter to be reported, TransCanada has an Earnings ESP of 0.00%, while it carries a Zacks Rank #4.
TRANSCDA CORP Price and EPS Surprise
TRANSCDA CORP Price and EPS Surprise | TRANSCDA CORP Quote
Spectra Energy Corp. (SE - Free Report) is another energy firm to report results on Wednesday morning.
Headquartered in Houston, TX, Spectra Energy operates more than 22,000 miles of natural gas, natural gas liquids, and crude oil pipelines. However, the company doesn’t exactly have a great track record when it comes to earnings, as it has missed estimates in the last three quarters.
But with an earnings ESP of +8.00% and Zacks Rank #3, our proven model shows that an earnings beat is likely for Spectra Energy in the to-be-reported quarter. (Read more: Spectra Energy Q3 Earnings: Is a Beat in the Cards?)
SPECTRA ENERGY Price and EPS Surprise
SPECTRA ENERGY Price and EPS Surprise | SPECTRA ENERGY Quote
Finally, we have midstream partnership Plains GP Holdings L.P. (PAGP - Free Report) coming up with third-quarter numbers after market close.
Houston, TX-based Plains GP Holdings L.P., which is involved in the transportation, storage, terminaling, and marketing of crude oil and refined products, has a dismal track of having missed estimates in each of the last four quarters.
The upcoming quarterly numbers could be more of the same as our proven model shows that the partnership does not have the right combination the two key components. While a Zacks Rank #1 increases the predictive power of ESP, the company’s ESP of -40.00% makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.
PLAINS GP HLDGS Price and EPS Surprise
PLAINS GP HLDGS Price and EPS Surprise | PLAINS GP HLDGS Quote
Now See Our Private Investment Ideas
While the above ideas are being shared with the public, other trades are hidden from everyone but selected members. Would you like to peek behind the curtain and view them? Starting today, for the next month, you can follow all Zacks' private buys and sells in real time from value to momentum . . . from stocks under $10 to ETF and option moves . . . from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trades >>