Can Growth Projects Drive Magellan's (MMP) Q4 Earnings?

Magellan Midstream Partners L.P. (NYSE:MMP) is set to release fourth-quarter 2017 results before the opening bell on Feb 1.

In the preceding three-month period, the Tulsa, OK-based partnership reported weaker-than-expected earnings amid lower contribution from Refined Products and Marine Storage segments along with increased costs

Nevertheless, Magellan Midstream has a good record when it comes to beating earnings estimates. The partnership has topped estimates in three out of last four quarters, with an average beat of 3.62%.

Which Way are Estimates Treading?

Let’s look at the estimate revisions in order to get a clear picture of what analysts are thinking about the company before earnings release.

The Zacks Consensus Estimate of $1.12 for the current quarter earnings has been revised upward by a cent over the last seven days. It reflects growth of about almost 7.7% from the year-ago quarter

Further, analysts polled by Zacks expect revenues of $663 million for the quarter, up 7.8% from the prior-year quarter.

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. This includes the longest U.S. refined petroleum products pipeline system, access to almost 50% of refining capacity in the continental U.S. along with imports and 85 petroleum terminals with more than 90 million barrels of storage. Fee-based activities account for about 88% of the total operating income of the partnership.

The partnership’s strong asset base is likely to increase the visibility of its above-average growth potential beyond 2018. In particular, increasing cash flow from online growth projects along with continued strong performance from Magellan Midstream’s fee-based businesses will drive earnings. Throughput levels from the important pipeline projects including Longhorn and Bridge Tex pipelines are expected to ramp up which are likely to buoy the results in the quarter under review.

The partnership recently announced a cash distribution of 92 cents per unit ($3.68 per unit annualized), representing around 1.7% sequential increase and 7.6% year-over-year increase. This has generated optimism about its quarterly performance this season.

What the Zacks Model Unveils

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

Zacks ESP: Earnings ESP for this company is +3.69%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Magellan Midstream carries a Zacks Rank #3 (Hold) which, when combined with a positive ESP, makes us confident of an earnings beat.

Note that stocks with Zacks Ranks #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates. On the other hand, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

Energy Stocks With Favorable Combination

Magellan Midstream is not the only energy firm looking up this earnings season. Here are some companies within the same industry which, according to our model, also have the right combination of elements to post earnings beat this quarter:

Plains All American Pipeline, L.P. (NYSE:PAA) has an Earnings ESP of +4.78% and a Zacks Rank #3. The partnership is expected to release fourth-quarter earnings results on Feb 6. You can see the complete list of today’s Zacks #1 Rank stocks here.

NuStar Energy L.P. (NYSE:NS) has an Earnings ESP of +7.46% and a Zacks Rank #3. The partnership is expected to release fourth-quarter earnings results on Feb 8.

Antero Midstream GP LP (NYSE:AMGP) has an Earnings ESP of +2.22% and a Zacks Rank #3. The partnership is expected to release fourth-quarter earnings results on Feb 13.

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