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On Apr 3, we upgraded Kinder Morgan Inc. (KMI - Analyst Report) from a Neutral to an Outperform recommendation, anticipating its performance to be better than the broader market.

Why the Upgrade?

Texas-based Kinder Morgan is one of the largest midstream energy companies in North America, operating approximately 75,000 miles of pipelines transmitting natural gas, refined petroleum products, crude oil, carbon dioxide and additional products. It has more than 180 terminals that store petroleum products and chemicals, as well as ethanol, coal, petroleum coke and steel. 

We expect Kinder Morgan to capitalize on attractive investment opportunities in the near term, particularly in the Eagle Ford and Haynesville shale plays. The company continues to profit from the performance of its publicly traded limited partnership, Kinder Morgan Energy Partners, L.P. (KMP - Analyst Report). The partnership’s contribution to KMI’s distribution is immense given KMP’s stable and incremental cash flow from diversified assets in virtually all types of market conditions.

During the fourth quarter, Kinder Morgan improved its revenues and earnings on an annual basis, buoyed by higher volumes in most of its businesses. The company’s growth curve is expected to be driven by its incentive distribution rights ownership of the general partners of both Kinder Morgan Energy Partners and El Paso.

Kinder Morgan intends to invest about $3 billion in expansion and acquisitions in 2013. Increased exploration and production volumes along with continuous expansion of the Transmountain oil pipeline, terminal volume growth and upcoming projects would also enhance shareholder value.

Solid growth prospects have raised optimism for even better results for Kinder Morgan in the years ahead. The Zacks Consensus Estimate for 2013 now stands at $1.24 per share, while the estimate for 2014 is pegged at $1.43.

Other Stocks to Consider

Kinder Morgan currently has a market capitalization of $39.2 billion. Other stocks to watch out for in the industry are SemGroup Corporation (SEMG - Snapshot Report)  - Zacks Rank #1 (Strong Buy) and Oiltanking Partners, L.P. (OILT - Snapshot Report) - Zacks Rank #2 (Buy).

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