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NuStar Energy L.P. (NS) Down 3% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for NuStar Energy L.P. (NS). Shares have lost about 3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is NuStar Energy L.P. due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

NuStar Q3 Earnings & Sales Miss Estimates

NuStar Energy’s third-quarter 2019 earnings and sales lagged the Zacks Consensus Estimate. The partnership posted adjusted earnings per unit of 15 cents, lower than the Zacks Consensus Estimate of 29 cents. Weaker storage terminal revenues and higher operating expenses of the storage unit can be attributed to the earnings miss.

Nonetheless, the bottom line reversed the year-ago loss of $3.49 a unit on the back of solid operations from the Pipeline segment amid expanded throughput volumes from crude oil pipelines.

Quarterly revenues of $378.1 million missed the Zacks Consensus Estimate of $381 million. The top line was also below the year-ago level of $380.1 million.

While the firm’s revenues declined year over year, NuStar’s operating income increased from $89.1 million to $99.9 million in the quarter under review. The rise in operating income was driven by lower costs and expenses, which totaled $278.1 million compared with the year-earlier level of $290.9 million. Notably, cost of product sales declined 23.5% from the prior-year quarter to $80.8 million.

Segmental Performance

Pipeline: Total quarterly throughput volumes were 1,773,189 barrels per day (Bbl/d), up 19.6% from the year-ago period. While throughput volumes from crude oil pipelines jumped 33.3% (primarily owing to higher contribution from the Permian crude system) from the year-ago quarter to 1,218,913 Bbl/d, throughput from refined product pipelines witnessed a nominal decrease to 554,276 Bbl/d from 567,320 Bbl/d. As a result, the segment’s revenues rose 10.02% year over year to $179.2 million. Concurrently, operating income of $87.8 million was up from the year-ago figure of $77 million.

Storage: Throughput volumes rose to 438,999 Bbl/d from 335,118 Bbl/d in the prior-year quarter. The unit’s quarterly revenues increased to $113.7 million from $110.2 a year ago owing to surging throughput terminal revenues (from $21.1 million to $26.3 million). However, operating expenses of the firm increased from $47.6 million in the year-ago quarter to $51.4 million. The segment’s operating income came in at $37.9 million compared with $39.2 million in the corresponding quarter of 2018.

Fuels Marketing: Product sales decreased to $85.1 million from $107.1 million in the year-ago quarter. On a positive note, cost of goods and operating expenses declined 23.7% and 1.65% from the prior-year period to $80 million and $834,000, respectively.  The segment recorded earnings of $4.2 million in the quarter under review compared with $1.3 million in third-quarter 2018.

Cash Flow, Debt and Guidance

Third-quarter 2019 distributable cash flow available to limited partners was $88 million (providing 1.36x distribution coverage), higher than $77 million (providing 1.19x distribution coverage) in the year-ago period.

As of Sep 30, the partnership’s total debt was $2898.4 million, representing a debt-to-capitalization ratio of 62.08%.

The firm continues to expect full-year adjusted EBITDA in the band of $665-$715 million. EBITDA from continuing operations for 2019 is expected in the range of $625-$675 million. Impairment charges and sale losses for 2019 are now forecast in the band of $340-$345 million. The partnership further anticipates full-year total capital spending between $485 million and $515 million.

For 2020, NuStar projects its EBITDA between $715 million and $765 million. It also estimates a 35% year-over-year reduction in its 2020 capital spending which is expected in the band of $300-$350 million.
 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

At this time, NuStar Energy L.P. has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, NuStar Energy L.P. has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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