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What's in Store for Phillips 66 Partners' (PSX) Q4 Earnings?

Zacks Equity Research

Phillips 66 Partners LP PSXP is set to release fourth-quarter 2018 results before the opening bell on Feb 8.

In the last reported quarter, the company’s earnings of $1.10 per share beat the Zacks Consensus Estimate of 93 cents. In the trailing four quarters, the company delivered a positive earnings surprise of 6%, beating estimates thrice. This can be attributed to improved volumes at the partnership’s wholly-owned pipelines. For the fourth quarter, the company is expected to report earnings of $1.10 per share.

Phillips 66 Partners LP Price and EPS Surprise

Phillips 66 Partners LP Price and EPS Surprise | Phillips 66 Partners LP Quote

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

Which Way are Estimates Trending?

Let’s take a look at estimate revisions to get a clear picture of what analysts are thinking about the company before the earnings release.

The Zacks Consensus Estimate of $1.10 for the fourth quarter has seen two upward and no downward revisions by firms in the past 30 days. This reflects year-over-year growth of about 32.5%.

The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $383.3 million, reflecting an improvement of 15.8% from the year-ago period.

Factors at Play

Houston, TX-based Phillips 66 Partners provides midstream services through its fee-based crude oil, refined petroleum products and natural gas liquids pipelines, terminals, as well as other midstream assets. The infrastructure provider, with $6.3-billion market capitalization, operates pipeline systems in Borger/Ponca City, Billings, Lake Charles, Sweeny and Wood River. These pipeline assets provide shipping services in North America, where production has currently surpassed the transportation capacity. Phillips 66 Partners’ pipeline assets face strong demand in the market and generate long-term steady cash flow from operations. Also, with several projects coming online in the past few months, the partnership is poised to benefit amid the bottleneck situation.

Notably, fourth-quarter results are expected to record a year-over-year improvement on the back of the Sacagawea raw natural gas pipeline project, which came online in the third quarter of 2018. Moreover, the expansion of the Bayou Bridge Pipeline connecting Lake Charles to St. James, LA, originally estimated to be completed in fourth-quarter 2018, will support year-over-year earnings growth. Additionally, the extension of the Sand Hills NGL Pipeline came into service on Dec 1. While Phillips 66 Partners holds one-third of ownership stakes in the project, DCP Midstream, LP DCP owns the rest. The pipeline supports the rising demand for takeaway capacity in the Permian Basin.

Also, Phillips 66 Partners’ terminal, rail rack, and storage assets located in Illinois, Kansas, Louisiana, Missouri, Montana, New Jersey, Oklahoma, Texas and Washington, as well as marine assets in Lake Charles and Wood River will support fourth-quarter results. However, in the first nine months of 2018, its total costs and expenses have risen 8.4% from the last year’s corresponding period to $516 million. The partnership’s bottom line will likely be hurt if this trend continues in the fourth quarter as well. 

What Does Our Model Unveil?

Our proven model does not conclusively show that Phillips 66 Partners is likely to beat the Zacks Consensus Estimate in the to-be-reported 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: Earnings ESP represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate. Phillips 66 Partners has an ESP of -3.47% as the Most Accurate Estimate stands at $1.07, lower than the Zacks Consensus Estimate of $1.10.You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Phillips 66 Partners currently carries a Zacks Rank #2. Though a Zacks Rank of #2 increases the predictive power of ESP, a negative 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.

Energy Stocks With Favorable Combination

Though an earnings beat looks uncertain for Phillips 66 Partners, here are a few firms from the energy space that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat in the quarter to be reported.

Tulsa, OK-based The Williams Companies, Inc. WMB has a Zacks Rank #3 and an Earnings ESP of +10.08%. The company is slated to report fourth-quarter earnings on Feb 13. You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based Phillips 66 PSX carries a Zacks Rank #3 and has an Earnings ESP of +7.80%. The company is anticipated to report quarterly results on Feb 8.

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