Pipeline operator Magellan Midstream Partners LP MMP is set to release second-quarter 2015 financial results before the opening bell on Aug 6.
During the last four quarters, the partnership delivered a 1.15% negative earnings surprise. Let’s see how things are shaping up for this announcement.
Factors Likely to Influence this Quarter
Magellan Midstream owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee and tariff-based revenues. Moreover, lucrative acquisitions and organic growth projects have made major contributions toward Magellan’s development.
Most importantly, the partnership hiked its second-quarter 2015 cash distribution last month. The new distribution of 74 cents represents year-over-year hike of 16% and a 3% sequential increase. We believe that the higher dividend is a reflection of strong financials. Investors should also note that Magellan Midstream expects earnings for the April to June 2015 quarter at 75 cent per unit, higher than the year-ago quarter figure of 64 cents.
Moreover, low oil cost brings higher refining activities. This is because the input cost of the refiners is low. With higher refining there will be greater need for storage and transportation of refined petroleum products. We can expect Magellan Midstream to beat our estimates as the partnership is involved in transporting, storing and distributing the refined products.
However, the partnership’s increasing operating expense is a matter of concern.
Earnings Whispers
Our proven model does not conclusively show that Magellan Midstream is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of +1.37% for Magellan Midstream as the Most Accurate estimate is 74 cents while the Zacks Consensus Estimate is pegged lower at 73 cents.
Zacks Rank: Magellan Midstream has a Zacks Rank #4 (Sell). Despite the positive ESP, our surprise prediction is inconclusive. This is because we caution investors against Sell-rated (Zacks Rank of 4 or 5) stocks going into an earnings announcement, especially when it is seeing negative estimate revisions.
Stocks to Consider
Here are some companies to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
CONE Midstream Partners LP CNNX has an Earnings ESP of +12.50% and a Zacks Rank #1 (Strong Buy). The partnership is slated to release earnings on Aug 5.
Seadrill Partners LLC SDLP has an Earnings ESP of +12.28% and a Zacks Rank #1. The partnership is slated to release earnings on Aug 26.
Calumet Specialty Products Partners LP CLMT has Earnings ESP of +15.79% and a Zacks Rank #2 (Buy). The partnership is likely to release earnings on Aug 5.
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