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Kinder Morgan (KMI) Up 6.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Kinder Morgan (KMI - Free Report) . Shares have added about 6.6% 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 its most recent earnings report in order to get a better handle on the important drivers.

Kinder Morgan Posts In-line Earnings in Q4, Increases Y/Y

Kinder Morgan posted fourth-quarter 2018 earnings of 25 cents per share from continuing operations, which were in line with the Zacks Consensus Estimate and up 19% from the year-ago quarter’s tally of 21 cents.

The company posted 2018 earnings of 89 cents, in line with the Zacks Consensus Estimate and up from the year-ago figure of 66 cents.

Total revenues increased 4% year over year to $3,781 million. However, the top line lagged the Zacks Consensus Estimate of $3,913 million.

Higher contribution from almost all large transmission intrastate and interstate systems along with the midstream gathering as well as processing assets contributed to growth in the fourth quarter. However, this was offset by lower oil prices and reduced liquids operations.

Segment Analysis

Natural Gas Pipelines: Operating income in the segment was $1,110 million, up 8.1% from $1,027 million in the year-ago quarter. Higher contribution from the Texas Interstate System and favorable outcome from El Paso Natural Gas (EPNG), Natural Gas Pipeline Company of America (NGPL), Kinder Morgan Louisiana Pipeline (KMLP) and Colorado Interstate Gas (CIG) drove figures. The upside can be attributed to various midstream gathering and processing assets, including KinderHawk, as well as higher drilling activity and production.

CO2: The segment reported earnings of $216 million, which declined 5.3% from $228 million in fourth-quarter 2017. Lower volumes and oil prices led to the decline. This was partially offset by higher CO2 prices as well as volumes in SACROC and Tall Cotton.

Terminals: This unit delivered profit of $302 million, which fell 4.7% from $317 million in the October-December quarter of 2017 mainly due to reduced liquids operations.

Products Pipelines: This segment recorded earnings of $317 million, up 1% year over year. Higher throughput on Cochin, Utopia and Double H Pipelines led to the improvement.

Kinder Morgan Canada: The segment no longer makes contributions due to the sale of Trans Mountain on Aug 31, 2018. During the fourth quarter of 2017, the segment reported earnings of $50 million.

Operational Highlights

Operating expenses in the quarter were $2,723 million, down 3.6% from $2,824 million in the fourth quarter of 2017.   

Operating income amounted $1,058 million, up 31% from the year-ago quarter’s figure. Operating margin was approximately 28% compared with 22.2% in the year-ago quarter.

Financials

The company reported fourth-quarter distributable cash flow of $1,273 million compared with $1,190 million in the prior-year quarter. The company had a project backlog of $5.7 billion at the end of the quarter.

As of Dec 31, 2018, Kinder Morgan reported $3,280 million in cash and cash equivalents. The company’s long-term debt amounted to $33,105 million at the quarter end. Total debt-to-capitalization ratio at the end of the fourth quarter was 48.9%.

Outlook

Kinder Morgan contemplates to raise 2019 dividend by 25% to $1 from 80 cents in 2018. It expects EBITDA and distributable cash flow of about $7.8 billion and $5 billion, respectively.

For 2019, the company expects to invest $3.1 billion for growth projects, up from $2.5 billion in 2018. The company plans to finance the investment through internally generated cash flow.

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 a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 looks promising. 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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