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Why Hold Strategy is Apt for Kinder Morgan (KMI) Stock Now

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Kinder Morgan, Inc. (KMI - Free Report) has seen upward earnings estimate revisions for 2021 earnings in the past 60 days. Notably, for 2020, the midstream energy firm has not witnessed any earnings estimate revision over the same time frame.

What’s Favoring the Stock?

Being a leading North American midstream energy player, Kinder Morgan has the largest natural gas transportation network in the continent. The company’s natural gas pipeline assets, spreading across roughly 70,000 miles, are responsible for transporting roughly 40% of U.S. natural gas consumption & exports volumes.

Moreover, being a transporter of roughly 1.7 million barrels per day (MMB/D) of refined products through its pipeline network spreading across 6,800 miles, the company is the largest independent transporter of refined products in North America. Kinder Morgan also has operating interest in 147 terminals.

The company, carrying a Zacks Rank #3 (Hold), generates stable fee-based revenues from its vast network of midstream infrastructure. Notably, the company’s business model is relatively less exposed to the volatility in oil and gas prices as compared to upstream and downstream companies.

Factors Deterring the Stock

Although Kinder Morgan’s business model is relatively stable, the coronavirus pandemic has clouded the company’s near-term outlook. This is because declining natural gas and crude production volumes have dented demand for the company’s midstream infrastructure, comprising pipeline networks and storage assets. In fact, several energy firms with midstream presence are now left with no option but to offer discounts to shippers to survive the pandemic.

Also, the company’s current backlog was $2.9 billion as of the June quarter of 2020, significantly lower than the high of $22 billion reached in mid-2015. Kinder Morgan has lost significant backlog with the divestment of the Trans Mountain Pipeline and associated properties. This will likely dent the company’s future cash flows.

Importantly, as of Jun 30, 2020, the midstream company had only $526 million in cash and cash equivalents, and a significantly high long-term debt of $29,976 million. Notably, its cash balance is not sufficient to pay off short-term debt of $3,006 million. Also, total debt-to-capitalization at second quarter-end was 51.8%, reflecting significant debt exposure.

Stocks to Consider

Meanwhile, better-ranked players in the energy space include Cabot Oil Gas Corporation (COG - Free Report) , Apache Corporation (APA - Free Report) and EOG Resources, Inc. (EOG - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cabot Oil Gas has seen upward earnings estimate revisions for 2020 in the past 30 days.

Apache has seen upward estimate revisions for its 2020 bottom line in the past 30 days.

EOG Resources has seen upward estimate revisions for its 2020 bottom line in the past 60 days.

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