DCP Midstream LP (NYSE:DCP): Should The Recent Earnings Drop Worry You?
When DCP Midstream LP (NYSE:DCP) released its most recent earnings update (31 March 2018), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how DCP Midstream performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see DCP has performed. View our latest analysis for DCP Midstream
Was DCP’s weak performance lately a part of a long-term decline?
I look at the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This technique allows me to analyze various companies on a more comparable basis, using the most relevant data points. For DCP Midstream, its latest earnings (trailing twelve month) is US$14.00M, which, against the previous year’s figure, has dropped by a significant -93.20%. Since these values may be somewhat myopic, I have estimated an annualized five-year figure for DCP’s net income, which stands at US$138.49M This doesn’t look much better, as earnings seem to have gradually been diminishing over the longer term.
Why could this be happening? Well, let’s look at what’s occurring with margins and if the entire industry is feeling the heat. Revenue growth over the past few years, has been positive, however, earnings growth has failed to keep up meaning DCP Midstream has been increasing its expenses by a lot more. This hurts margins and earnings, and is not a sustainable practice. Scanning growth from a sector-level, the US oil and gas industry has been growing its average earnings by double-digit 25.04% in the previous year, . This is a turnaround from a volatile drop of -5.08% in the last few years. This shows that, in the recent industry expansion, DCP Midstream has not been able to reap as much as its industry peers.
What does this mean?
Though DCP Midstream’s past data is helpful, it is only one aspect of my investment thesis. In some cases, companies that experience a drawn out period of reduction in earnings are undergoing some sort of reinvestment phase in order to keep up with the recent industry disruption and expansion. I recommend you continue to research DCP Midstream to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DCP’s future growth? Take a look at our free research report of analyst consensus for DCP’s outlook.
Financial Health: Is DCP’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
