Q3 results and guidance updates are all in for the Actively Managed Portfolio and High Yield Energy List, as well as for most of our coverage universes.
We’re still assessing how results affect our company-by-company outlook for the rest of the year and into 2020. But there are already a few clear takeaways.
First, our recommendations’ Q3 numbers were quite solid, including companies whose shares have taken hard hits lately. And they support guidance for capital spending, distribution policies and balance sheet strength.
That’s by no means true of every energy company we track, and there are plenty of disaster stories shaping up in our coverage universes. But our long-standing thesis is still very much intact: This is a much more sustainable and resilient industry than it was five years ago at the start of the decline.
The Alerian MLP Infrastructure Index has dropped more than 20 percent since late July. The chief catalyst for the most recent decline: Growing concern that falling North American rig deployment will stall oil and gas production in 2020.
What’s it going to take for Energy Transfer LP (NYSE: ET) to get a little respect?
Eagle Ford, Texas-based midstream company Sanchez Midstream Partners (NYSE: SNMP) eliminated its quarterly distributions this week after the bankruptcy filing of its largest customer and general partner, Sanchez Energy Corp (OTC: SNECQ). The important question for most energy sector investors now is where the hammer will fall next.
Kinder Morgan Inc (NYSE: KMI) kicks off earnings reporting season for the US energy midstream sector with no real surprises.
In the midstream business, companies’ results are being affected very differently by the cutback in drilling rig deployment. Investors are treating sector companies almost as though the blow will fall equally hard on all of them. And MLPs especially can’t catch a break, almost no matter what they report. But the truth is there were very wide differences in the trends behind numbers reported by midstream companies in Q3. And that gap is likely to widen going forward.
Ensign Energy Services (TSX: ESI, OTC: ESVIF) was the only company in our EIA coverage universes to announce a dividend cut since the November 1 issue went to post. The Canada-based drilling and services company reduced its quarterly payout by 50 percent to 6 cents a share from the previous rate of 12 cents.
One of the most important lessons to learn about earnings season is that the market’s reaction to the news can be more important than the news itself.
In other words, if a company reports weak earnings and issues cautious guidance for the quarter ahead; yet, the stock rallies, that’s a sign that market expectations were already low, and the bad news was priced into the stock before it released earnings results.
There have been no dividend cuts announced in our energy stock coverage universes since the previous issue of Energy and Income Advisor. Three companies, however, halted what had been consistent quarterly distribution growth.
Is the Hess Midstream Partners (NYSE: HESM) transaction a good deal for unitholders, or should we take this opportunity to cut and run before there’s real damage? We think the positives outweigh the negatives of this deal. With Hess Midstream converting to a corporation, those who hold it outside of an IRA will probably pay higher taxes on distributions going forward.
Elliott and Roger on Nov. 26, 2019
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