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Kinder Morgan (KMI) Up 2.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Kinder Morgan (KMI). Shares have added about 2.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Kinder Morgan due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Kinder Morgan Earnings Meet Estimates in Q4, Increase Y/Y

Kinder Morganposted fourth-quarter 2019 adjusted earnings per share of 26 cents, in line with the Zacks Consensus Estimate. The bottom line improved from the year-ago quarter’s 25 cents.

However, total revenues declined to $3,352 million from $3,781 million in the prior-year quarter and missed the Zacks Consensus Estimate of $3,724 million.

The quarterly earnings were backed by increased natural gas transportation and gathering volumes. While Natural Gas Pipelines and Product Pipelines segments supported the results, decline in commodity prices and crude volumes affected the CO2 segment, which partially offset the same. 

Full-year 2019 revenues amounted to $13.2 billion, down from the 2018 figure of $14.1 billion. The company declared a cash dividend of 25 cents per share for the fourth-quarter, which is payable on Feb 18, 2020.

Segment Analysis

Natural Gas Pipelines: Adjusted earnings before depreciation, depletion and amortization expenses — including amortization of excess cost of equity investments (EBDA) — in the December quarter of 2019 were up 11% to $1,248 million from $1,128 million in the year-ago period. Higher natural gas transportation and gathering volumes can be attributed to the outperformance. Notably, natural gas transport volumes rose 14% year over year, marking the eighth straight quarter exceeding the 10% growth mark.

The segment was also supported by the Elba Liquefaction and Gulf Coast Express (GCX) projects. The GCX provides higher natural gas takeaway capacity from the Permian Basin.

Products Pipelines: The segment’s adjusted EBDA in the fourth quarter was $322 million, reflecting an improvement of 8% from $297 million a year ago. Strong contributions from the company’s Bakken Crude assets, the KM Splitter and SFPP aided the segment.

Terminals: Through this segment, Kinder Morgan generated quarterly adjusted EBDA of $290 million, down 5% from the year-ago period due to sale of the Canadian business, partially offset by higher refined product exports from the Houston Ship Channel hub. 

CO2: The segment’s EBDA declined 14% to $185 million from $216 million a year ago due to decline in commodity prices and crude volumes.

Operational Highlights

Expenses related to operations and maintenance totaled $679 million, up from $640 million a year ago. Cost of sales declined to $776 million from $1,199 million in the year-ago period. As such, total operating costs fell to $1,421 million in the fourth quarter from $2,723 million in the corresponding period of 2018.

Quarterly operating income amounted to $1,931 million, up from the year-ago quarter’s $1,058 million. For full-year 2019, the metric rose to $4.9 billion from $3.8 billion in 2018.

DCF & Backlog

The company’s fourth-quarter distributable cash flow increased to $1,354 million from $1,273 million a year ago.

It recorded project backlog of $3.6 billion at the end of the quarter.

Balance Sheet

As of Dec 31, 2019, Kinder Morgan reported $185 million in cash and cash equivalents. The company’s long-term debt amounted to $30,883 million at quarter-end. Total debt-to-capitalization ratio at the end of the fourth quarter was 49.4%.

Guidance

Kinder Morgan reaffirmed 2020 dividend at $1.25 per common share, reflecting a 25% year-over-year rise. It intends to use internally generated cash flow to fund dividend payments.

The company expects adjusted EBITDA and DCF for 2020 to be $7.6 billion and $5.1 billion, respectively. For 2020, it expects to spend $2.4 billion on growth developments and joint ventures.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Kinder Morgan has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions has been net zero. Notably, Kinder Morgan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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