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Nustar Energy (NS) Up 5.8% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Nustar Energy L.P. (NS - Free Report) . Shares have added about 5.8% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is NS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

First-Quarter 2017 Results

NuStar Energy's first-quarter 2018 earnings per limited partner unit of $1.15 per unit missed the Zacks Consensus Estimate of $1.19, due to Pipeline segment income. However, it surged 134.7% year over year from the year-ago earnings of 49 cents per unit, due to contributions from the partnership’s Permian Crude System. Moreover, increased storage rates at the partnership’s several international facilities supported the results.

NuStar’s operating income was $98.5 million, up 1.4% from the prior-year quarter. Moreover, the partnership recorded a net income of $126.1 million in the quarter under review, compared with $57.9 million in the year-ago quarter.

Quarterly revenues of $475.9 million surpassed the Zacks Consensus Estimate of $449 million. However, the top line was slightly lower than the year-ago level of $487.4 million, primarily due to a decline in product sales and other revenues in the Fuels Marketing segment.

Quarterly Distribution

NuStar announced a quarterly distribution of 60 cents per unit ($2.40 per unit annualized), lower than the prior-quarter’s figure of $1.095. The reduced distribution – as part of the impending merger with its general partner –is payable on May 14 to its unitholders of record as of May 8, 2018.

Per NuStar’s latest earnings release, distributable cash flow available to limited partners in the first quarter was $91.7 million (providing 1.64x distribution coverage), compared with $88.9 million (providing 0.87x distribution coverage) in the year-ago quarter.

Segmental Performance

Pipeline: Total quarterly throughput volumes in the segment were 1,323,188 barrels per day (Bbl/d), up 43.4% from the year-ago period. While throughput volumes in the crude oil pipelines jumped 93.6% (owing to higher contribution from Permian crude system) from the year-ago quarter to 791,294 Bbl/d, refined product pipelines throughput inched up 3.5% to 531,894 Bbl/d.

As a result, throughput revenues rose 12.8% year over year to $136.8 million. However, operating and depreciation expenses rose 28% and 58.4%, respectively. Concurrently, the segment’s operating income of $57.8 million was down from the year-ago figure of $65 million.

Storage: Throughput volumes in the Storage segment surged 9.2% year over year to 343,933 Bbl/d. Higher storage terminal revenues, on the back of stronger contribution from Permian Crude System and increased storage rates at several facilities, drove the unit’s quarterly revenues from $147.4 million in the first quarter of 2017 to $155.3 million in the quarter under review. Moreover, the segment's operating income also witnessed a slight increase of 4.7% to come in at $56.3 in the reported quarter.

Fuels Marketing: Product sales and other revenues from this segment fell to $185.8 million from $222.7 million in the year-ago quarter. The unit reported operating earnings of $6.3 million, higher than the income of $5.1 recorded in the prior-year quarter. The results were supported by 87.9% fall in operating expenses and the streamlining efforts that the partnership executed last year.

Balance Sheet

As of Mar 31, 2018, the partnership’s total debt was $3,726.1 million, representing a debt-to-capitalization ratio of 59.9%.

Guidance

The partnership expects its production from the Permian Basin to be in the range of 360-380 thousand barrels per day (Mbbl/d) in 2018. NuStar witnessed strong interest for the open season it conducted for the Permian Crude System capacity expansion. The partnership anticipates the project to be completed by July-end, which will increase the system’s capacity by 70 Mbbl/d.

The capital spending of 2018 is expected to be in the range of $360-$390 million, which includes 190 million for the Permian Crude System project. $50 million of the spending will be directed towards the Mexican refined market.

The partnership also announced its intention of expanding its South Texas pipeline assets and the terminal located in the Nuevo Laredo, Mexico. The company has plans to address the growing market of refined products in Mexico. The partnership also announced the closing of an acquisition of CHS’ Council Bluffs system, which includes a 227-mile pipeline and 18 storage tanks.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to one lower.

Nustar Energy L.P. Price and Consensus

 

Nustar Energy L.P. Price and Consensus | Nustar Energy L.P. Quote

VGM Scores

At this time, NS has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. The stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for growth and to a lesser degree momentum.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, NS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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