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El Paso Pipeline Posts a Mixed Bag

Zacks Equity Research

El Paso Pipeline Partners (EPB) announced fourth-quarter 2012 operating earnings of 63 cents per unit, surpassing the Zacks Consensus Estimate by 8 cents. The results of the partnership were also higher than the year-ago earnings of 51 cents per unit.

El Paso Pipeline Partners 2012 operating earnings were $2.19 per unit compared with $1.96 per unit reported in 2011. With this the partnership surpassed the Zacks Consensus Estimate of $2.09 per unit.

The upside was driven by strong performance from its pipeline and storage assets, positive impact from cost savings and increasing use of natural gas by power plants.

Total Revenue

Total revenues at the end of the fourth quarter were $390 million versus $388 million in the year-ago period, which reflects growth of 0.5%.

Quarterly revenue was lower than the Zacks Consensus Estimate of $406 million.

The partnership generated total revenue of $1,515 million in 2012, marginally down from $1,531 million reported in 2011.

Highlights of the Release

The partnership was able to lower its operating and maintenance costs both for the quarter and the full year. This benefited the partnership’s operating income.

Operating income in the fourth quarter increased 17.5% year over year to $248 million. 2012 operating income inched up 1.6% to $863 million.

The partnership also hiked its quarterly cash distribution rate to 61 cents per unit up 5% sequentially from 58 cents and higher 22% year over year from 50 cents.

2013 Forecast

El Paso Pipeline Partners expects to increase its annual cash distribution per unit by 13% year over year to $2.55. The partnership also expects to generate earnings before DD&A of $1.22 billion, up an estimated $40 million from the 2012 level.

Other Stocks to Consider

Besides El Paso Pipeline Partners a few other pipeline operators are also performing well and have a favorable Zacks Rank. Increasing production and use of natural gas in power plants benefited the pipeline operators. The operators worth considering are Zacks Ranked #1 Boardwalk Pipeline Partners LP (BWP) and Zacks Ranked #2 Sunoco Logistics Partners L.P. (SXL) among others.

Our view

The partnership has registered back-to-back earnings surprises with an average beat of 12.3%. The long-term expected earnings growth rate for this stock is 5.1%.

Despite a handful of positives, El Paso Pipeline Partners will have to deal with rate case proceedings and the timely completion of Elba Express Pipeline. The partnership currently retains a short-term Zacks Rank #3 (Hold).

Based in Houston, Texas, El Paso Pipeline Partners was founded in 2007. The partnership is involved in storage and transportation of natural gas across the United States.

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