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Oil & Gas Pipeline Nov 3 Earnings Preview: ENB, PBA & More

We have reached the final stretch of the Q3 earnings season, with results from 332 S&P 500 members – that combined account for almost 75% of the index’s total market capitalization – on board.

Q3 Reflects Improving Trends in Growth

Total earnings for these companies are up 1.9% from the same period last year on 1.3% higher revenues, with 72.9% positive earnings surprises and 55.4% beating revenue estimates. (Data from the Earnings Outlook dated Nov 1, 2016).

A 1.9% quarterly earnings growth may look quite insignificant but what’s encouraging is that the figure is a considerable improvement over the previous five quarters. Should the positive trend continue throughout the quarter, it will represent   the first positive growth for the S&P 500 index after five quarters of back-to-back declines.

Energy: Another Quarter of Weak Results

Expectedly, the ‘Oils/Energy’ sector has been a big drag on the aggregate growth picture. For the 61.1% sector components on the S&P 500 index that have reported Q3 results – including behemoths like Exxon Mobil Corp. XOM and Chevron Corp. CVX – total earnings are down 63.1% on 13.7% lower revenues.

However, despite being the largest decliner among major sectors, an overwhelming 72.7% Oils/Energy companies have beaten earnings estimates – though undoubtedly aided by low expectations.

Oil & Gas Pipeline Partnerships: Mixed Sentiments Prevailing

The Pipeline Business: The assets that these firms own – oil and natural gas pipelines and storage facilities – typically bring in stable fee-based revenues and have limited, if any, direct commodity-price exposure. This enables them to pay out fairly growing dividends/distributions.

Bullish Case: The collapse in crude has markedly reduced the average price of U.S. gasoline, the most widely used petroleum product. This has resulted in record gasoline volumes across pipeline systems and a boon for operators whose compensation is based on the quantity moving through their system.

Given the current weaknesses in petroleum stocks, oil and gas pipeline companies are probably the best method of investing in the sector. They also offer liquidity and tax benefits, which add to their appeal. This is why these stocks would make good additions to your portfolio.

Bearish Case: Considering the potential tax advantages, coupled with their safe and sustainable dividend payouts, pipeline operators should have been the ‘safe haven investment’ for energy investors during the ongoing oil rout. However, the more than two-year long crude price crash has been steadily diminishing the attractiveness of this asset class on the whole.

Not only has the carnage eliminated years of gains associated with the shale revolution but also wiped out billions in market value from some of the country’s top energy companies.

When commodity prices started their downward journey in the middle of 2014, midstream operators – with relatively consistent and predictable cash flows under long-term contracts – were fairly unscathed. However, with more and more industry participants viewing the oil glut (responsible for the price plunge) as a long-term phenomenon as opposed to a passing trend, the ongoing crisis has eaten into demand for pipelines and processing plants.

Stocks to Watch for Earnings on Nov 3

Let’s see what’s in store for four such oil and gas pipeline companies expected to come up with third-quarter numbers on Thursday, Nov 3.

An energy transportation and distribution company with operations in North America and internationally, Enbridge Inc. ENB is expected to report results before the opening bell.

We expect the Calgary, Alberta-based oil and natural gas pipeline operator to beat expectations this time around.

This is because, as per our proven model, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat earnings. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.

Simultaneously, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

We are reasonably confident of an earnings beat in the quarter to be reported as Enbridge has an Earnings ESP of +27.59% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

ENBRIDGE INC Price and EPS Surprise

 

ENBRIDGE INC Price and EPS Surprise | ENBRIDGE INC Quote

Pembina Pipeline Corp. PBA is another energy infrastructure company lined up to report third-quarter results – this time after the market close.

Also headquartered in Calgary, Pembina Pipeline owns and operates pipelines that carry crude oil and natural gas liquids produced in western Canada to North America’s energy industry.

With an Earnings ESP of 0.00% and Zacks Rank #3, our proven model shows that an earnings beat is unlikely for Pembina Pipeline in the to-be-reported quarter.

PEMBINA PIPELN Price and EPS Surprise

 

PEMBINA PIPELN Price and EPS Surprise | PEMBINA PIPELN Quote

Then we have midstream partnership Cheniere Energy Partners L.P. Holdings LLC CQH coming out with third-quarter numbers prior to the opening bell.

Houston, TX-based Cheniere Energy Partners L.P. Holdings, by virtue of its 55.9% ownership in Cheniere Energy Partners L.P. CQP, primarily operates the Sabine Pass natural gas regasification and liquefaction facilities.

In each of the last four quarters, the entity delivered an earnings surprise of 0.00%. Our model indicates that Cheniere Energy Partners L.P. Holdings is unlikely to beat on earnings this time also. This is because it is a Zacks Rank #3 stock and has an Earnings ESP of 0.00%. (Read more: Cheniere Energy Partners: Q3 Earnings to Surprise?)

CHENIERE EP LP Price and EPS Surprise

 

CHENIERE EP LP Price and EPS Surprise | CHENIERE EP LP Quote

Lastly, there is Frank's International N.V. FI releasing quarterly numbers on Thursday morning. Founded in 1938, the Amsterdam, Netherlands-based company is a leading provider of proprietary tubular services to global oil and gas finders.

Coming to earnings surprise history, Frank’s International has a dismal track record: its missed estimates in three of the last four quarters at an average rate of -355.36%.

We not expect the company to beat earnings expectations in the third quarter as our proven model shows that it does not have the right combination the two key components. While a Zacks Rank #3 increases the predictive power of ESP, the company’s ESP of 0.00% makes surprise prediction difficult.

FRANKS INTL NV Price and EPS Surprise

 

FRANKS INTL NV Price and EPS Surprise | FRANKS INTL NV Quote

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CHEVRON CORP (CVX): Free Stock Analysis Report
 
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
 
ENBRIDGE INC (ENB): Free Stock Analysis Report
 
CHENIERE ENERGY (CQP): Free Stock Analysis Report
 
FRANKS INTL NV (FI): Free Stock Analysis Report
 
CHENIERE EP LP (CQH): Free Stock Analysis Report
 
PEMBINA PIPELN (PBA): Free Stock Analysis Report
 
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