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On Sep 18, Zacks Investment Research upgraded one of the largest publicly traded master limited partnerships (MLPs), Kinder Morgan Energy Partners L.P. (KMP - Analyst Report), to a Zacks Rank #2 (Buy).

Why the Upgrade?

Kinder Morgan is a premier MLP with an impressive track record of distribution growth and financial discipline. The partnership has invested a significant amount in a number of projects that should drive growth in the future.

On Sep 3, Kinder Morgan announced the completion of Parkway Pipeline, a joint venture (JV) with Valero Energy Corp. (VLO - Analyst Report). The pipeline has started transferring refined petroleum products and the partnership stands to benefit from the 50% stake it holds in the project.

The partnership’s other initiatives include forming a midstream JV to pursue two new projects with MarkWest Utica EMG L.L.C – a JV between MarkWest Energy Partners, L.P. (MWE - Analyst Report) and The Energy and Minerals Group ("EMG"). Prior to that, in July, Kinder Morgan had formed another JV with Keyera Corp. to develop a crude oil rail loading facility in Edmonton, Alberta.  

On Jul 17, Kinder Morgan reported second quarter earnings of 49 cents, up almost 32.4% from the year-ago profit of 37 cents. Revenues also increased roughly 50.1% to $3,017.0 million from $2,010 million in the year-ago quarter, surpassing the Zacks Consensus Estimate of $2,720.0 million.

The partnership’s distribution story also looks promising. Kinder Morgan raised its quarterly cash distribution 7% y-o-y to $1.32 ($5.28 annualized) per common unit, reflecting its 48th quarterly distribution hike. This distribution is fueled by growth opportunities in the midstream energy sector, with more emphasis on the natural gas shale plays as well as coal export business.

All these positives are considered in the company’s long-term expected earnings growth of 8.25%. The Zacks Consensus Estimate for the third quarter has moved up 3 cents (or 5.5%) to 58 cents over the last 60 days. The Zacks Consensus Estimate for the full year is currently pegged at $2.48, after moving up 7 cents (or 2.9%) in the same time frame.

Other Stocks to Consider

In addition to Kinder Morgan, one can also consider other energy pipelines and terminal operators like Magellan Midstream Partners LP (MMP - Analyst Report) that currently sport a Zacks Rank #1 (Strong Buy).

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