Midstream's Q2 Earnings Remain Mostly Positive

Second quarter earnings season is winding down, providing investors with an opportunity to examine sectors and industries that delivered solid top- and bottom-line results.

A fine place to start is with midstream energy and members of the Alerian Energy Infrastructure ETF (ENFR). While there are still some midstream earnings reports lingering out there, companies from this group that have reported thus far are either slightly beating or meeting Wall Street forecasts.

Supporting the case for midstream assets is that the companies in this space that have provided guidance for the rest of 2021 are doing so in mostly positive fashion. Additionally, distributions in the industry are either being sustained or increased.

“Kinder Morgan (KMI) and Hess Midstream (HESM) raised their FY2021 adjusted EBITDA guidance (both citing improved volumes), while Enbridge (ENB) and Magellan Midstream Partners (MMP) maintained their guidance. Crestwood Equity Partners (CEQP) was the only company to cut FY2021 adjusted EBITDA guidance by $15 million from the midpoint of the previous guidance range; however, this was actually a guidance raise as the company also adjusted out $30 million in 2H21 for the Stagecoach divestiture to KMI,” said Alerian analyst Roxana Islam in a recent note.

Enbridge is ENFR’s largest holding at a weight of 10.84%. Overall, the five stocks mentioned above combine for about 20% of the ETF’s roster.

To this point in the midstream second quarter earnings season, the largest earnings beat before interest, taxes, depreciation, and amortization (EBITDA) was delivered by Shell Midstream Partners LP (SHLX). That operator is one of ENFR’s smaller components.

“Although earnings results were largely neutral given that most companies posted only a slight beat, 2021 guidance has so far been positive. Most companies that provide outlook on adjusted EBITDA or distributable cash flow have either maintained or raised their guidance,” adds Alerian’s Islam.

The outlook is sturdy for dividends, too. Of the ENFR components that have stepped into the earnings confessional, all have distributable cash flow (DCF) cash flow coverage ratios of at least 1.2x. Some are at 2.2x or higher.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.