Earlier this month, Energy Transfer Partners L.P. (ETP) – a master limited partnership (“MLP”) – announced its financial results for the third quarter ended September 30, 2010.
Now that the analysts have had some time to ponder upon the quarterly performance of Energy Transfer, they are weighing in their estimate revisions. Below we cover the results of the recent earnings announcement, subsequent analyst estimate revisions and Zacks ratings for the outlook.
Earnings Review
On November 9, 2010, Energy Transfer announced disappointing third quarter results, pulled down by a weakness in its ‘Intrastate’ segment on the back of a pipeline outage, partially offset by robust propane margins.
The pipeline operator’s earnings per unit came in at 5 cents, well below the Zacks Consensus Estimate of 21 cents, while revenues of $1.3 billion missed our projection by 15.1%.
However, compared to the year-ago period, Energy Transfer’s earnings per unit improved considerably from the third quarter 2009 loss of 10 cents. Quarterly revenue rose 14.3%, driven by a 14.7% rise in natural gas sales.
(Read our full coverage on this earnings report: Energy Transfer Results Disappoint)
Agreement of Estimate Revisions
Analysts exhibit diametrically opposite sentiments regarding Energy Transfer’s 2010 and 2011 outlooks. In particular, we see a notable number of estimate revisions over the past 30 days, indicating that revisions were in response to the partnership’s third quarter earnings release.
Out of 9 analysts covering the stock, 7 have revised their estimates for 2010 downward, while 2 have gone in the opposite direction. Looking to 2011, the trend is reversed. Out of 16 analysts, 7 hiked their estimates as against 5 negative revisions.
The near-term outlook seems to be mixed as indicated by the similar number of positive/negative revisions for the December quarter. Five of the 12 analysts have increased their quarterly estimates over the last 30 days, with the same number making negative revisions.
The downtrend in estimate revisions for 2010 reflects a rather conservative volume and margin assumptions across both the ‘Midstream’ and ‘Intrastate’ segments.
Recently, Energy Transfer announced that two pipeline projects (Fayetteville Express Pipeline and the Tiger Pipeline) will transport shale gas further downstream. They will come online several months ahead of schedule and significantly below budget. The earlier-than-expected completion of these large-scale, interstate projects, together with the cost savings the partnership is able to achieve, is likely to translate into significant distributable cash flows for Energy Transfer’s unitholders in 2011 and the subsequent years. This accounts for the uptrend in estimate revisions for 2011.
(Read our full coverage on the news: ETP’s Projects Nearing Completion)
Magnitude of Estimate Revisions
As a result of the analysts revising estimates over the past 30 days, the Zacks Consensus Estimates for fiscal 2010 have dropped by 16 cents (from $1.47 to $1.31), while for 2011, estimates are up by 6 cents (from $2.58 to $2.64). Meanwhile, the estimate for the December 2010 quarter is down by 6 cents.
Our Recommendation
Energy Transfer Partners remains a premier MLP with strategically-positioned assets serving major North American natural gas-producing basins. We like the partnership’s robust organic growth profile, stable fee-based operating income and strong liquidity position. While the partnership kept its distribution unchanged, we expect distribution growth to resume next year, driven by the completion of a broad array of organic growth projects. However, we believe that the near- to medium-term outlook for Energy Transfer’s natural gas gathering and processing business continues to be weak. The partnership’s seasonal propane business also remains a major liability, in our view.
Energy Transfer Partners currently retains a Zacks #3 Rank (short-term Hold rating), in line with its large-cap pipeline MLP peers Enterprise Products Partners L.P. (EPD), Kinder Morgan Energy Partners L.P. (KMP), and Plains All American Pipeline L.P. (PAA). We are also maintaining our long-term Neutral recommendation on the stock.
ENTERPRISE PROD (EPD): Free Stock Analysis Report
ENERGY TRAN PTR (ETP): Free Stock Analysis Report
KINDER MORG ENG (KMP): Free Stock Analysis Report
PLAINS ALL AMER (PAA): Free Stock Analysis Report
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