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Kinder Morgan Down to Hold

Zacks Equity Research

On Mar 18, 2014, Zacks Investment Research downgraded Kinder Morgan Inc. (KMI) to a Zacks Rank #3 (Hold) from a Zacks Rank #2 (Buy).

Why the Downgrade?
Kinder Morgan is the largest midstream and the third largest energy company in North America with a combined enterprise value of approximately $100 billion. It owns an interest in or operates approximately 80,000 miles of pipelines and 180 terminals. Its pipelines transport natural gas, gasoline, crude oil, CO2 and other products, and its terminals store petroleum products and chemicals and handle such products as ethanol, coal, petroleum coke and steel.

Like all other oil and gas majors, Kinder Morgan remains vulnerable to volatile crude oil and natural gas prices, an imbalance between supply and demand for its products as well as rising interest rates. Such factors can hurt the company’s volumes and margins.

Moreover, Kinder Morgan’s distribution growth prospects are closely linked to the successful completion of organic growth projects, which in turn might be adversely affected by operational hindrance, cost inflation and overruns, and delays in completion.

Additionally, although Kinder Morgan possesses solid cash flow stability from quality pipeline and storage assets, we believe that higher gasoline and feedstock prices will marginally increase the risk profile of its refined product pipeline assets. Even with its diversified set of assets, Kinder Morgan has little exposure to the shale oil infrastructure which is enjoying a boom.

Over the past one month, the company has seen a negative trend in earnings estimate revision. For the first quarter of 2014, two estimates moved down in the past 30 days, with no upward revision. For the full year, two estimates moved down while only one estimate was revised upward.

Other Stocks to Consider

Some better-ranked stocks in the broader energy sector include Range Resources Corporation (RRC), Vermilion Energy Inc. (VET) and Patterson-UTI Energy Inc. (PTEN). All the three stocks hold a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on RRC
Read the Full Research Report on PTEN
Read the Full Research Report on KMI

Zacks Investment Research