23 Oct

Can Enbridge Energy Partners Match Its 3Q15 Earnings Estimates?

WRITTEN BY Rekha Khandelwal, CFA

Enbridge Energy Partners’ 3Q15 earnings estimates

Analysts expect that Enbridge Energy Partners’ (EEP) 3Q15 EBITDA[1. earnings before interest, tax, depreciation, and amortization] will be more than triple the 2Q15 EBITDA and 18% higher than its 3Q14 EBITDA. Enbridge Energy Partners’ 2Q15 adjusted EBITDA was impacted by $247 million in a goodwill impairment charge recognized by Enbridge Energy Partners in that quarter.

Can Enbridge Energy Partners Match Its 3Q15 Earnings Estimates?

EBITDA compared

The graph above compares consensus EBITDA estimates with Enbridge Energy Partners’ EBITDA over ten quarters. The company missed EBITDA estimates in seven out of the last ten quarters. Its high EBITDA in 4Q14 was contributed by non-cash, mark-to-market gains on its hedges. Removing the impacts of one-time charges, its EBITDA had broadly been in the $300 million to $400 million range over the last six quarters.

Why are the earnings estimates high?

Greater capacity due to additional assets placed into service in Enbridge Energy Partners’ Liquids segment should contribute to Enbridge Energy Partners’ EBITDA in the third quarter. Additional revenues from rising volumes could contribute to EBITDA if costs don’t rise more than proportionally.

The first tranche of the second phase of Enbridge Energy Partners’ Southern Access expansion went into service in May 2015. This should contribute to the segment’s EBITDA in 3Q15. Moreover, additional assets that were placed into service in 2014 on Enbridge Energy Partners’ Lakehead system should continue to contribute to EBITDA growth in the quarter.

Workforce reductions and other management cost reduction efforts in the company’s Natural Gas segment, reducing operating costs in 2Q15, may contribute to EBITDA in 3Q15 as well. The company forms ~4.7% of the Global X MLP ETF (MLPA).

Other MLPs with natural gas gathering and processing assets include DCP Midstream Partners (DPM), Targa Resources (NGLS), and MarkWest Energy Partners (MWE).

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