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Kinder Morgan Energy Partners Message Board

  • counselor711322 counselor711322 Jun 5, 2012 11:22 AM Flag

    Saying goodbye to an old friend

    I first bought KMP back in October 2009. I even bought some on the day of the flash crash. KMP had performed well over time--until recently the selling has been unrelenting.

    As to why, I've come to the conclusion that compared to its peers, KMP is way overpriced and many unitholders are beginning to realize that.

    KMP's PE = around 143

    EPD, ETP, MWE, LINE, and PAA are all up today, while KMP is down.

    EPD's PE = a little under 18
    ETP's PE = a little under 9
    MWE's PE = 22
    LINE's PE = 7
    PAA's PE = 15

    The risk-reward ratio is no longer in KMP, but its far less expensive competitors. KMP made me a lot of money, but time to re-deploy that capital elsewhere.

    Good luck to the longs. I have a feeling you're going to need it. Hopefully, with a PE ratio of 143, KMP isn't going to have an Enron-like collapse in the share price.

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    • PE is not a fair way to evaluate MLPs. They trade on cash flow and dividend sustainability and growth.

    • So how much will you have to "re-deploy" after you pay taxes on all those profits. Keep in mind those wonderful almost tax free distributions have to considered and some recaptured. I own 3 of the companies you mentioned and I really like them, but not as much as KMP.

      • 2 Replies to fgddd
      • I sold some KMP in the past. The LTG tax is just the tip of the taxburg. The recapture tax on the past distributions will take all the fun out of the sale.

      • First of all P/E is not a valid metric on which to value MLPs. Due to pipeline depreciation, they could run at an astronomical P/E pretty much indefinitely, indeed have been for decades. The valuation needs to be based on DCF.

        Apart from that, this poster is right on about the tax consideration. Let's say you have a $20k position yielding 6%. You sell and pay $5k in taxes (quite possible if you've been holding a while). You now have $15k to reinvest. What yield do you need to get the same level of distribution income? You need 8% yield to get the same level of income, meaning you need to move to something with higher risk. (This example is in general terms, not saying anything specific about KMP).

        Thus every time you sell an MLP you've had for a reasonable period and reinvest elsewhere, you will have to either accept lower portfolio income or accept higher risk. Once you've held for a few years, it's generally better not to sell unless something materially changes the company prospects.