Can Magellan Midstream (MMP) Surprise? - Analyst Blog

We expect Tulsa, Oklahoma-based publicly traded energy pipeline partnership Magellan Midstream Partners LP ( MMP ) to beat expectations when it reports third-quarter 2013 results on Oct 31, before the opening bell. Last quarter, the company posted a positive earnings surprise of +22.64%. Let's see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Magellan Midstream is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: The Earnings ESP (Expected Surprise Prediction), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +5.17%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.

Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

The combination of Magellan Midstream's Zacks Rank #3 (Hold) and +5.17% ESP makes us confident of a positive earnings beat this quarter.

What is Driving the Better-than-Expected Earnings?

Magellan Midstream owns an attractive portfolio of energy infrastructure assets that generate stable and recurring fee- and tariff-based revenues. This includes the longest U.S. refined petroleum products pipeline system, access to more than 40% of refining capacity in the continental U.S., along with imports and many petroleum terminals with more than 80 million barrels of storage.

On Jul 1, 2013, Magellan Midstreamclosed the purchase of the Texas and New Mexico-based pipeline properties from Plains All American Pipeline LP ( PAA ). The pipeline system stretches over 250 miles and carries refined petroleum products from El Paso, Texas, to Albuquerque, N.M. We expect this acquisition to prove lucrative to Magellan Midstream's development.

Moreover, Magellan Midstream has established a track record of consistent distribution growth - its third-quarter 2013 distribution of 55.75 cents per unit ($2.23 per unit annualized), is up 325% since its initial public offering (IPO) at the beginning of 2001, and also represents a sequential increase of 5% and year-over-year hike of 15%. We believe that the distribution increase reflects the partnership's continued strong performance, backed by strong operating results.

Lastly, Magellan Midstream's investment grade credit ratings provide a competitive advantage in accessing capital at reasonable cost.

Other Stocks to Consider

Here are two energy companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter.

Northern Oil and Gas Inc. ( NOG ) with Earnings ESP of + 3.23% and a Zacks Rank #1 (Strong Buy).

Matador Resources Co. ( MTDR ) with Earnings ESP of + 13.33% and a Zacks Rank #1 (Strong Buy).

MAGELLAN MDSTRM (MMP): Free Stock Analysis Report

MATADOR RESOURC (MTDR): Free Stock Analysis Report

NORTHRN OIL&GAS (NOG): Free Stock Analysis Report

PLAINS ALL AMER (PAA): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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