Magellan Midstream (MMP): What To Expect In Q2 Earnings?

Pipeline operator Magellan Midstream Partners LP (NYSE:MMP) is set to release second-quarter 2016 financial results before the opening bell on Aug 2.

The partnership surpassed the Zacks Consensus Estimate in three of the last four quarters, with an average positive earnings surprise of 7.79%. Let’s see how things are shaping up for this announcement.

Factors Likely to Influence 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 72 cent per unit for the April–June quarter, lower than the year-ago quarter figure of 82 cents.

It is to be noted that the second quarter saw crude advancing more than 26% sequentially − the best quarterly percentage gain in seven years. Throughout the quarter, oil price improved significantly from mid-February, when West Texas Intermediate (WTI) crude fell to a 12-year low mark of $26.05 per barrel. Moreover, last month, oil prices settled above the psychologically important $50 per barrel level for the first time in more than 10 months.

Since refiners buy crude, their input cost increased, thereby resulting in lesser refining activities. Also, with lower refining there will be lesser need for storage and transportation of refined petroleum products that might hurt the partnership’s business since it is involved in transporting, storing and distributing the refined products.

Earnings Whispers

Our proven model does not conclusively show that Magellan Midstream is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. This leads to an ESP of 0.00% for Magellan Midstream as both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 73 cents.

Zacks Rank: Magellan Midstream has a Zacks Rank #3 (Hold), which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.

The Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the entity is seeing negative estimate revisions.

MAGELLAN MDSTRM Price and EPS Surprise

MAGELLAN MDSTRM Price and EPS Surprise | MAGELLAN MDSTRM Quote

Stocks to Consider

Here are some companies to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Antero Resources Corporation (NYSE:AR) has an Earnings ESP of +400.00% and a Zacks Rank #2 (Buy).

Cimarex Energy Co (NYSE:XEC) has an Earnings ESP of +150.00% and a Zacks Rank #2.

Spectra Energy Corp (NYSE:SE) has an Earnings ESP of +12.00% and a Zacks Rank #2.