As someone who has covered the oil & gas pipeline sector, I always find it necessary to determine what needs to occur in order for a company to meet and/or exceed analysts' expectations. With that said, I wanted to take a closer look and share my thoughts on what needs to happen in order for Genesis Energy, L.P. (NYSE:GEL) to deliver a fairly solid quarter when the company announces its results on July 31.
Genesis Energy, L.P. is a midstream energy master limited partnership headquartered in Houston, Texas, with a diverse portfolio of customers, operations, and assets, including refinery-related plants, pipelines, storage tanks and terminals, marine operations, and trucks and truck terminals.
The company prides itself on the highly specialized customer attention it focuses on when it comes to the midstream segment of the oil and gas industry, pulp and paper mills, mining operations and other industries.
Recent Trend Behavior
On Tuesday, units of GEL, which currently possess a market cap of $4.91 billion, a forward P/E ratio of 29.13, and a PEG ratio of 2.20, settled at a price of $55.40/unit. Based on a closing price of $55.40/unit, units of GEL are trading 0.54% above their 20-day simple moving average, 0.27% above their 50-day simple moving average, and 4.57% above their 200-day simple moving average.
Although these numbers indicate both a short-term and a long-term uptrend for the stock, which generally translates into a buying mode for most near-term traders and many long-term investors, I strongly believe the company's trend behavior will continue to improve even after it announces its Q2 results on July 31.
Upcoming Earnings Outlook
When it comes to the company's upcoming Q2 earnings, there are a number of things potential investors should consider. For instance, analysts currently calling for GEL to earn $0.35/share in terms of EPS (which is $0.01/share higher than what the company had reported during Q1 2014, and $0.02/share higher than what the company had reported during the year-ago period) and $1.16 billion in terms of revenue when its latest earnings are released on July 31.
In order to meet and/or exceed its quarterly EPS estimates, I'd like to see a 2%-to-4% increase in the company's Q2 Available Cash before Reserves (as compared to Q1's Available Cash before Reserves of $53.4 million), a 2%-to-3% increase in the company's Q2 Adjusted EBITDA (as compared to Q1's Adjusted EBITDA of $66.6 million), a 2.5%-to-4% increase in the partnerships DCF, and lastly, a 2%-to-3% increase in the company's net income (as compared to Q1's net income of $29.8 million).
Recent Distribution Behavior
On Tuesday, July 10, Genesis Energy, L.P. announced a quarterly distribution increase of $0.015/unit, which brings its upcoming distribution payout to $0.565/share. It should be noted that the increase will be paid on August 14 for unit holders of record as of August 1. This boost represents a 2.7% increase from its prior distribution of $0.55/share, which was paid to investors on May 15.
Based on the company's distribution behavior over the last 18 months, it should come as no surprise that I foresee its next quarterly distribution hike will take place in the fourth quarter of 2014, and that I expect that increase to be at least $0.015/share but no more than $0.03/share.
For those of you who may be considering a position in Genesis Energy, L.P., I'd continue to keep an eye on the company's distribution behavior over the next 6-12 months (especially since I see at least one more increase before the end of the year) as well as its available cash levels, its adjusted EBITDA, its distributable cash flow and its net income as each these factors will impact the partnership's long-term earnings growth.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.