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How Mid-Cap and Large-Cap MLPs Performed in 2Q17

PART:
1 2 3 4 5 6 7 8 9 10
Part 10
How Mid-Cap and Large-Cap MLPs Performed in 2Q17 PART 10 OF 10

DCP Midstream Posts Weak 2Q17 Earnings but Reaffirms 2017 Guidance

DCP missed EBITDA estimates by 11% in 2Q17

DCP Midstream (DCP), the midstream MLP jointly owned by Enbridge (ENB) and Phillips 66 (PSX), reported its 2Q17 earnings on August 7. The partnership’s 2Q17 EBITDA decreased to $216 million in 2Q17 compared to $226 million in 2Q16, a YoY decline of 4.4%. Moreover, the partnership missed its EBITDA estimate by 11.0%.

However, DCP Midstream reaffirmed its 2017 EBITDA and distributable cash flow guidance despite weak recent quarter numbers. According to Wouter van Kempen, DCP’s CEO, “The lower second quarter results were in line with our expectations and we are reaffirming our 2017 guidance. With strong July performance, we are off to an excellent start to the second half of the year.”

DCP Midstream Posts Weak 2Q17 Earnings but Reaffirms 2017 Guidance

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The above chart does not show the impact of the simplification transaction between DCP Midstream Partners and its GP prior to 1Q17.

DJ Basin expansion

DCP Midstream is continuing its expansion plans in the DJ Basin with the announcement of the two 200 million cubic feet per day processing plants during the second quarter. The partnership expects to reach 1.2 billion cubic feet per day of processing capacity in the basin by the end of 2019, a 45% increase compared to the current levels.

DCP announced flat distribution

DCP Midstream announced a flat distribution of $0.78 per unit for the recent quarter. Despite the partnership’s flat distributions, its distribution coverage fell to 0.89x in 2Q17 due to the decline in distributable cash flow. The partnership is less likely to resume distribution growth in the coming quarter considering its low distribution coverage and strong expansion plans.

Analyst recommendations

57.1% of analysts rate DCP Midstream a “hold,” 28.6% rate it a “buy,” and the remaining 14.3% rate it a “sell” as of August 8. DCP’s average target price of $38.9 implied 22% returns from its current price levels.

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