It has been about a month since the last earnings report for Phillips 66 Partners LP (PSXP). Shares have lost about 7.7% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Phillips 66 Partners LP due for a breakout? 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.
Phillips 66 Partners’ Q4 Earnings & Sales Beat Estimates
Phillips 66 Partners’ fourth-quarter 2019 earnings per unit came in at $1.06, which beat the Zacks Consensus Estimate of 99 cents owing to increased volumes on the partnership’s terminals and a full quarter contribution from the isomerization unit at the Lake Charles Refinery. However, earnings deteriorated from the year-ago quarter’s figure of $1.09 due to higher expenses.
Revenues of $432 million rose from $393 million in the year-ago quarter and also beat the Zacks Consensus Estimate of $419 million. The upside can be attributed to higher volumes and average realizations.
The partnership provides services through Pipelines, Terminals and Storage as well as Processing & Other activities.
Pipeline: In fourth-quarter 2019, the partnership generated revenues of $126 million, up from $118 million in the prior-year quarter. The uptick was led by higher average pipeline revenues of 67 cents per barrel compared with 61 cents per barrel in the year-ago quarter.
Terminals: The partnership generated $47 million, up $43 million from the year-ago quarter. The upside came on the back of higher throughput volumes of refined petroleum products.
Storage, Processing & Other activities: Through these activities, the partnership generated revenues of $118 million, up from $109 million in the year-ago quarter.
Operating and Maintenance Expenses
In the December quarter of 2019, the partnership reported operating and maintenance expenses of $90 million, up from $88 million in the year-ago quarter.
As of Dec 31, 2019, the partnership recorded cash and cash equivalents of $286 million. Also, total debt at the end of the quarter under review was $3,516 million.
Strategic Update & Outlook
Phillips 66 Partners has various ongoing projects that are backed by long-term volume commitments and expected to deliver typical midstream returns.
Gray Oak pipeline is operating in sync with expectations and expected to reach full service in the second quarter of 2020. It commenced initial operations on the 900,000 barrels per day (BPD). It will transport crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations. Phillips 66 Partners has a 42.25% ownership in the pipeline.
Sweeny to Pasadena capacity expansion project will add 80,000 BPD of pipeline capacity, providing additional naphtha offtake from the Sweeny fractionators. In addition, product storage capacity will increase by 300,000 barrels at the Pasadena Terminal. The project is expected to start by second-quarter 2020.
South Texas Gateway Terminal, in which Phillips 66 Partners owns a 25% interest, is expected to be completed by third-quarter 2020. The marine export terminal will have two deep-water docks, with storage capacity of 8.5 million barrels and up to 800,000 BPD of throughput capacity.
Clemens Caverns storage capacity expansion from 9 million barrels to 16.5 million barrels is expected to be completed in fourth-quarter 2020 while C2G Pipeline, which is a 16-inch ethane pipeline that will connect Clemens Caverns to petrochemical facilities in Gregory, Texas, near Corpus Christi. The unit is likely to commence operations by mid-2021.
The partnership has earmarked total capex of $867 million for 2020, which includes $734 million for growth projects and $133 million of maintenance capital. It expects to exit 2020 with EBITDA run rate of $1.5 billion.
How Have Estimates Been Moving Since Then?
Fresh estimates followed an upward path over the past two months.
At this time, Phillips 66 Partners LP has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Phillips 66 Partners LP has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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