TC PipeLines L.P.
) is scheduled to report its first-quarter 2013 results on
Wednesday, Apr 24, before the opening bell.
In the fourth quarter of 2012, TC PipeLines delivered a
negative 11.11% earnings surprise, due to lower transportation
rates in the Great Lakes along with low income from other
pipeline systems. In fact, TC PipeLines delivered negative
earnings surprises in all the last 4 quarters, with an average
miss of 7.08%. Let's see how things are shaping up prior to this
Factors to Consider This Quarter
There are reasonable concerns about the long-term availability
of natural gas transported by Northern Border Pipeline Company
due to the growing maturity of the pipeline's catchment area -
the Western Canadian Sedimentary Basin. This limits the
pipeline's long-term growth prospects.
Additionally, the contracting scene for Great Lakes Gas
Transmission appears bleak. While almost 80% of its contracted
capacity expired on Nov 1, 2012, we do not expect this to get
replenished under long-term contracts anytime soon due to several
structural challenges (indecision associated with the future
tolling structure or competitive landscape). This has led to
heightened uncertainty regarding the pipeline system's
Moreover, we also remain concerned about lower spending on
transportation fuels by businesses and customers. This has an
adverse impact on TC PipeLines' cash flows and distributions.
Additionally, we remain wary of cost overruns on expansion
projects (which lead to lower returns).
Our proven model does not conclusively show that TC PipeLines
is likely to beat the Zacks Consensus Estimate in the first
quarter. That is because a stock needs to have both a positive
earnings Expected Surprise Prediction or ESP (Read:
Zacks Earnings ESP: A Better Method
) and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3
(Hold) for this to happen. But this is not the case here as
Negative Zacks ESP:
This is because the Most Accurate estimate stands at 64 cents
while the Zacks Consensus Estimate is higher at 65 cents. This
results in a difference of -1.54%.
Zacks Rank #3 (Hold):
TC PipeLines' Zacks Rank #3, however, increases the predictive
power of ESP. That said we also need to have a positive ESP to be
confident of an earnings surprise call.
We caution against stocks with Zacks Rank #4 and 5 (Sell rated
stocks) going into the earnings announcement, especially when the
company is seeing a negative estimate revisions momentum.
Stocks to Consider
Here are some MLPs in the energy sector you might want to
consider on the basis of our model. These have the right
combination of elements to post an earnings beat this
Delek Logistics Partners L.P.
) has an earnings ESP of +10.53% and a Zacks Rank #2 (Buy).
NuStar Energy L.P.
) has an earnings ESP of +6.67% and a Zacks Rank #2 (Buy).
Spectra Energy Partners L.P.
) has an earnings ESP of +6.98% and a Zacks Rank #2 (Buy).
DELEK LOGISTICS (DKL): Free Stock Analysis
NUSTAR ENERGY (NS): Free Stock Analysis
SPECTRA EGY PTR (SEP): Free Stock Analysis
TC PIPELINES (TCP): Free Stock Analysis
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