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Why Is DCP Midstream Partners, LP (DCP) Up 22.8% Since Last Earnings Report?

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It has been about a month since the last earnings report for DCP Midstream Partners, LP (DCP). Shares have added about 22.8% in that time frame, outperforming the S&P 500.

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

DCP Midstream Misses Q4 Earnings on Lower Guadalupe Profits

DCP Midstream reported fourth-quarter 2020 adjusted earnings of 34 cents per unit, missing the Zacks Consensus Estimate of 47 cents. In the year-earlier quarter, the midstream energy player reported a loss of 8 cents per unit.

Decreased profits from Guadalupe and Sand Hills affected the bottom line for the fourth quarter. The negatives were partially offset by increased income from Southern Hills and new earnings from the Cheyenne Connector. Lower costs and expenses also boosted the profit levels.

Revenues of $1,785 million missed the Zacks Consensus Estimate of $2,472 million. Moreover, the figure declined from $1,929 million in the year-ago quarter. This was caused by lower NGL fractionator throughput and average natural gas wellhead volumes.

Operations

Logistics and Marketing

The segment recorded operating income of $158 million for the fourth quarter, up from the year-ago period’s $149 million. Higher profits from Southern Hills and new income from the Cheyenne Connector boosted the sector’s performance. This was partially offset by decreased profits from Guadalupe and Sand Hills.

Average NGL pipelines throughput for the quarter was 610 thousand barrels per day (Mbpd), higher than the year-ago level of 599 Mbpd. Fractionator throughput, however, decreased to 54 Mbpd from the year-ago level of 58 Mbpd.

Gathering and Processing

The segment reported net income of $85 million for the fourth quarter compared with $12 million a year ago. Decreased operating costs boosted the segment, which was partially offset by a decline in volumes in the South and Midcontinent regions.

Average wellhead volumes for the quarter declined to 4,442 million cubic feet per day (MMcf/d) from the year-ago period’s 4,998 MMcf/d. However, NGL gross production rose to 414 Mbpd from 404 Mbpd in the year-ago quarter.

Total Expenses

Total operating costs and expenses for the fourth quarter were $1,740 million, down from the year-ago quarter’s $1,977 million. Purchases and related costs, as well as operating and maintenance expenses decreased for the quarter under review. This was partially offset by increased general and administrative expenses.

Financials

For fourth-quarter 2020, total expansion capital expenditure and equity investments were $12 million. Sustaining capital for the quarter was $22 million. It generated excess free cash flow of $85 million in the fourth quarter.

At the end of fourth-quarter 2020, the partnership reported long-term debt of $5,119 million, and cash and cash equivalents of only $52 million. Moreover, it had current debt of $505 million.

View

In the DJ Basin, the partnership brought online Latham 2 Offload, with a capacity of 225 MMcf/d, at 2020-end. Throughout 2021, it is expected to maintain stable distribution at $1.56 per unit on an annualized basis.

Due to the coronavirus pandemic, DCP Midstream is expected to take a conservative approach through 2021 in regard to volumes and pricing of commodities. The partnership expects adjusted EBITDA for 2021 in the range of $1,120-$1,260 million, the midpoint of which is below the 2020 level of $1,252 million. It expects excess free cash flow to rise more than 60% in 2021 to $310-$460 million from the 2020 level of $237 million.

DCP Midstream expects expansion capital expenditures and equity investments within $25-$75 million in 2021, significantly down from $205 million in 2020. Sustaining capital expenditures for 2021 is estimated within $45-$85 million. The metric was $45 million in 2020.

It expects NGL pipeline volumes to rise this year supported by higher ethane recovery. However, overall profits might get affected by decreasing Guadalupe earnings. Also, Gathering and Processing volumes are expected to decline in 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -8.74% due to these changes.

VGM Scores

At this time, DCP Midstream Partners, LP has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, DCP Midstream Partners, LP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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