Spectra Energy Corporation SE is expected to report first-quarter 2015 earnings on May 6.
Spectra Energy surpassed the Zacks Consensus Estimate in three of the trailing four quarters. In the last reported quarter, the company delivered a positive earnings surprise of 51.61%. Let’s see how things are shaping up for this announcement.
Earnings Whispers
Our proven model shows that Spectra Energy is likely to beat earnings because it has the perfect combination of two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +2.38%. This is because the Most Accurate estimate stands at 43 cents, whereas the Zacks Consensus Estimate is pegged lower at 42 cents. This implies a likely positive earnings surprise for this company.
Zacks Rank: Spectra Energy carries a Zacks Rank #3 (Hold).The stocks with Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (Zacks Ranks #4 and 5) should never be considered going into an earnings announcement.
The combination of Spectra Energy’s Zacks Rank #3 and +2.38% ESP make us confident of an earnings beat this season.
What Will Drive the Better-than-Expected Earnings?
Spectra’s East Tennessee Natural Gas (“ETNG”) pipeline will supply an incremental 86 million cubic feet per day (MMcf/d) of fixed transportation capacity to Eastman Chemical Company’s Kingsport facility, TN, as per their new agreement. The contract is for 25 years. This agreement is expected to add significantly to the company’s revenue and thus boost its bottom-line growth during the first quarter.
Spectra plans to deploy about $25 billion over the next decade on fee-based gas infrastructure growth projects. We are optimistic about an upside from diverse near to medium-term projects, including its New Jersey-New York pipeline, an NGL pipeline in Texas, opportunities in the Gulfstream Pipeline and infrastructure to serve western Canada LNG exports. Further, growth will likely be achieved by a master limited partnership (MLP) dropdown strategy, following the recent asset additions.
Though we believe commodity price concerns remain for the near term, the company’s core fee-based businesses of storage, transmission, distribution and Canadian gathering and processing have the potential to move the needle toward solid earnings and cash flow growth in the long run. Spectra intends to increase its presence in the oil and refined products pipelines, storage tanks and terminals business, going forward.
However, Spectra’s results are vulnerable to fluctuations in natural gas markets. The proposed liquid-rich drilling activities by the company clearly suggests that low natural gas prices have little ability to pick up in the near term. The company remains exposed to weak commodity prices, which in turn, are likely to affect its earnings in Empress fractionator and DCP Midstream joint venture.
Stocks to Consider
Here are some companies from the same space which, according to our model, have the right combination of elements to post an earnings beat this quarter:
Dominion Midstream Partners, LP DM has an Earnings ESP of +5.26% and a Zacks Rank #1.
Spectra Energy Partners LP SEP has an Earnings ESP of +3.80% and a Zacks Rank #3.
Chesapeake Energy Corp. CHK has an Earnings ESP of +50.00% and a Zacks Rank #3.
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