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What's in the Cards for Shell Midstream (SHLX) in Q4 Earnings?

Zacks Equity Research

Shell Midstream Partners, L.P. SHLX is set to release fourth-quarter 2018 results before the opening bell on Feb 21.

This midstream master-limited partnership created by the oil supermajor Royal Dutch Shell plc RDS.A delivered better-than-expected results in the preceding quarter on the back of robust volumes on its Zydeco and Amberjack pipelines. In fact, this partnership’s impressive portfolio of assets helped the firm pull off positive earnings surprise in each of the trailing four quarters, the average being 10.97%.

Shell Midstream Partners, L.P. Price and EPS Surprise


Shell Midstream Partners, L.P. Price and EPS Surprise | Shell Midstream Partners, L.P. Quote

Investors are keeping their fingers crossed and hoping that the partnership can continue winning ways by surpassing earnings estimates this time around too. However, our model does not predict conclusive earnings beat for Shell Midstream in the fourth quarter of 2018.

Let’s see which way are top and bottom-line estimates headed this time.

The Zacks Consensus Estimate for earnings in the fourth quarter is pegged at 49 cents. It has remained unchanged over the past 30 days. This reflects an increase of about 40% from the year-ago figure of 35 cents. The Zacks Consensus Estimate for revenues is pegged at $130 million compared with $127 million in the prior-year quarter.

Let’s see how things are shaping up for this announcement.

Factors at Play

Increased volumes on Shell Midstream’s diversified portfolio of onshore and offshore assets are likely to aid the partnership’s revenues in the to-be-reported quarter. The firm’s onshore pipeline system, Zydeco system, is likely to benefit from higher volumes on the back of increasing demand for capacity in Texas and Louisiana.

Further volume growth in the offshore pipeline system, fueled by production from new fields and tiebacks, is also set to aid the partnership’s upcoming results. With new production in the fourth quarter, the firm expects growth momentum in the Amberjack pipeline to continue. Moreover, Mars and Auger pipeline systems, which resumed normalized operations after turnaround activities, are also likely to boost revenues.  

On a further encouraging note, the partnership announced a cash distribution of 40 cents, reflecting 4.7% and 20.1% hike from the prior quarter and the year-ago period, respectively, signaling confidence in its operations.

What Does the Zacks Model Unveil?

However, our proven model does not conclusively show that Shell Midstream is likely to beat the Zacks Consensus Estimate in the fourth quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Earnings ESP: The partnership has an Earnings ESP of 0.00%, as both the Zacks Consensus Estimate and the Most Accurate Estimate are pegged at 49 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Shell Midstream currently carries a Zacks Rank #3. Though a Zacks Rank of 3 increases the predictive power of ESP, 0.00% ESP makes surprise prediction difficult.

We caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the energy space that you may want to consider as according to our model these have the right combination of elements to post an earnings beat in this quarter:

C&J Energy Services, Inc. CJ has an Earnings ESP of +26.26% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings on Feb 21. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cheniere Energy, Inc. LNG has an Earnings ESP of +84.51% and a Zacks Rank #3. The company is set to release fourth-quarter earnings on Feb 26.

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