Pipeline operator Magellan Midstream Partners L.P.MMP is set to release its third-quarter 2016 results before the opening bell on Wednesday, Nov 2.
In the preceding three-month period, the Tulsa, OK-based partnership reported positive earnings surprise on the back of increased shipments following strong gasoline demand.
Coming to earnings surprise history, the company has a good record: its beaten estimates in 3 of the last four quarters, resulting in an average positive surprise of 8.17%.
MAGELLAN MDSTRM Price and EPS Surprise
Let's see how things are shaping up for this announcement.
Factors to Consider 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.
Despite those positives, Magellan Midstream expects earnings of 80 cents per unit for the Jul-Sep quarter, lower than the year-ago quarter figure of 86 cents.
It is to be noted that unlike the last quarter, in which oil advanced more than 26% sequentially to notch up the best quarterly percentage gain in seven years, the Jul-Sep 2016 period turned out to be a rather flat one with crude barely advancing. In fact, the West Texas Intermediate (WTI) crude futures during the third quarter hovered around the $45 per barrel mark, flat with the second quarter and down from $46.50 in the same period last year.
Magellan Midstream's non-fee based assets continue to be under pressure due to weak crude prices. This may result in reduced earnings and revenues for the firm.
Our proven model does not conclusively show that Magellan Midstream will beat estimates this quarter. 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) to be able to beat consensus estimates. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -3.41%. This is because the Most Accurate estimate stands at 85 cents, while the Zacks Consensus Estimate is pegged higher, at 88 cents.
Zacks Rank: Magellan Midstream has a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.
We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
While earnings beat looks uncertain for Magellan Midstream, here are some firms from the energy space you may want to consider on the basis of our model, which shows that they have the right combination of elements to post earnings beat this quarter:
W&T Offshore Inc. WTI has an Earnings ESP of +11.63% and a Zacks Rank #1. The company is expected to release earnings results on Nov 2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Devon Energy Corp. DVN has an Earnings ESP of +20.00% and a Zacks Rank #2. The partnership is anticipated to release earnings on Nov 1.
Comstock Resources Inc. CRK has an Earnings ESP of +3.74% and a Zacks Rank #2. The company is likely to release earnings on Nov 8.
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