Back to top

Image: Bigstock

What's in Store for Magellan Midstream (MMP) in Q4 Earnings?

Read MoreHide Full Article

Magellan Midstream Partners L.P. (MMP - Free Report) is set to release fourth-quarter 2018 results before the opening bell on Jan 31.

In the preceding three-month period, the Tulsa, OK-based partnership reported better-than-expected earnings on the back of stellar show from its refined products and crude oil units, along with reduced expenses.

Further, Magellan Midstream has a solid record of beating earnings estimates. The partnership topped estimates in three out of the last four quarters, with average positive earnings surprise of 2.42%.

Investors are keeping their fingers crossed and hoping that the partnership surpasses earnings estimates this time around as well. Let’s see which way are the company’s top and bottom-line estimates headed this time.

The Zacks Consensus Estimate for revenues is pegged at $718 million compared with $673 million recorded in the prior-year quarter. The Zacks Consensus Estimate for fourth-quarter earnings of $1.16 per share also reflects a year-over-year increase of 11.5%. Notably, earnings estimates for the to-be-reported quarter have been revised upward by a penny in the past 30 days.

Factors at Play

Magellan Midstream owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee-and tariff-based revenues. The partnership, majorly a refined products pipeline player, is also involved in crude oil pipeline operations. The long-haul pipelines extending across Texas are likely to drive the partnership’s cash flows and earnings. Driven by robust third-quarter results, Magellan Midstream anticipated fourth-quarter earnings at $1.24 per share, which is higher than the corresponding Zacks Consensus Estimate as well as the prior-year figure.

Further, the partnership recently announced a cash distribution of 99.75 cents per unit ($3.99 per unit annualized), representing around 2% sequential increase and 8% year-over-year growth. This has generated optimism about its quarterly performance this season.

As we know, rising production volumes of oil and gas in Texas are translating into higher transportation activities, thereby boosting the operations of many midstream companies. Moreover, throughput levels from Magellan Midstream’s pipeline projects including Longhorn, Saddlehorn and Bridge Tex pipelines, among others, are expected to ramp up, which are likely to buoy the results in the to-be-reported quarter.

Rising upstream activities in the Texas region have outrun transportation capacity, leading to the announcement of new pipeline projects by several midstream companies. Magellan Midstream is also making an aggressive effort to build new projects and bolster the crude oil midstream segment. While the move may be advantageous on a long-term perspective, it is likely to escalate the partnership’s near-term spending levels, in turn hampering profits. As it is, Magellan Midstream has several ongoing projects that require large capital outlay. Further, the partnership is already facing pressure on its balance sheet, with 60% debt-to-capital ratio. Moreover, continued rise in project outlays and tough operating environment are likely to hurt the partnership’s financials.

Earnings Whispers

Our proven model shows that Magellan Midstream is unlikely to beat estimates this earnings season. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.  

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -4.04%. This is because the Most Accurate Estimate of $1.11 is pegged below the Zacks Consensus Estimate of $1.16. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Magellan Midstream currently carries a Zacks Rank #3. While the company’s Zacks Rank increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

Note that we caution investors 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.

Stocks to Consider

Though an earnings beat looks uncertain for Magellan Midstream, here are a few firms from the energy space that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat in the quarter to be reported.

Philips 66 (PSX - Free Report) has an Earnings ESP of +18.19% and holds a Zacks Rank #3. The firm is expected to report fourth-quarter earnings on Feb 8. You can see the complete list of today’s Zacks #1 Rank stocks here.

Williams Companies (WMB - Free Report) has an Earnings ESP of +7.24% and a Zacks Rank #3. The firm is slated to release fourth-quarter earnings on Feb 13.

CSI Compressco LP (CCLP - Free Report) has an Earnings ESP of +4.17% and a Zacks Rank #3. The company is expected to release third-quarter earnings on Feb 27.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>