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Magellan Midstream (MMP): What to Expect in Q4 Earnings?

Pipeline operator Magellan Midstream Partners L.P.MMP is set to release fourth-quarter 2016 results before the opening bell on Feb 2.

In the preceding three-month period, the Tulsa, OK-based partnership reported positive earnings surprise of 3.41%. Coming to earnings surprise history, the company has a good record. It beat estimates in three of the last four quarters with an average positive surprise of 4.57%.

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. These factors should continue to support growth in the to-be-reported quarter as well.

Furthermore, Magellan has established a track record of consistent distribution growth. It recently announced a distribution of 83.75 cents per unit ($3.35 per unit annualized), which is 2% higher than the previous payout and 10% above the year-ago-quarter figure. Moreover, the partnership reiterated its annual distribution growth of 10% for 2016. Magellan Midstream continues to project annual distribution growth of at least 8% for 2017.

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However, we remind investors that the demand for transportation and storage services are directly linked to the price of underlying commodities. Amid the current weakness in oil prices and upstream firms reducing their expenditure on exploration activities, the demand for such services is likely to be adversely impacted. As such, the company's profits might be limited.

Also, Magellan Midstream has several ongoing projects which require large capital outlay. Delay in project completions and cost overruns are expected to hamper profitability for the partnership.

Year to date, the Zacks categorized Oil/Gas Production Pipeline-MLP industry has registered an impressive growth of 6.8%. However, the Magellan stock has underperformed the industry by registering growth of only 5.32%.

Earnings Whispers

Our proven model does not conclusively show that Magellan Midstream will beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for an earnings beat. This 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 -2.13%. This is because the Most Accurate estimate stands at 92 cents, while the Zacks Consensus Estimate is pegged higher at 94 cents. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter .

Zacks Rank: Magellan Midstream has a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Though an 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 is expected to release fourth-quarter earnings results on Mar 14. The company has an Earnings ESP of +73.91% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Sprague Resources LP SRLP has an Earnings ESP of +3.64% and a Zacks Rank #2. The partnership is anticipated to release fourth-quarter earnings on Mar 9.

Pioneer Natural Resources Company PXD has an Earnings ESP of +10.00% and a Zacks Rank #2. The company is likely to release fourth-quarter earnings on Feb 7.

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Magellan Midstream Partners L.P. (MMP): Free Stock Analysis Report

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W&T Offshore, Inc. (WTI): Free Stock Analysis Report

Sprague Resources LP (SRLP): 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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