We have maintained our Neutral recommendation on
Kinder Morgan Energy Partners L.P.
) on Apr 29, 2014. The partnership carries a Zacks Rank #3 (Hold).
Kinder Morgan is one of the major publicly traded master limited
partnerships (MLPs) and generally serves as a benchmark for the
pipeline MLP group. A focus on fee-based and diversified businesses
has enabled the partnership to spread its business risks. In
addition, the CO2 business is a major growth avenue for the
partnership, with the commodity price risk being offset by a
long-term hedging strategy.
Kinder Morgan has expanded its portfolio further by adding the
Tennessee Gas Pipeline (TGP), a portion of El Paso Natural Gas
(EPNG) pipeline and by reaping benefits of the May 2013 Copano
transaction. Various agreements/modifications have been lined up in
the coming years with these assets, which are expected to augment
the partnership's revenues.
Kinder Morgan foresees growth opportunities for TGP and EPNG
systems beyond the existing projects in the Marcellus and near the
Mexico border. The partnership also indicated that it is
considering a possible gas-to-crude pipe conversion on a portion of
EPNG to transport West Texas crude to refineries in California.
This would involve total capital of more than $2 billion. Apart
from this, management also sees opportunities to expand EPNG to
support increased demand for exports to Mexico.
During the first quarter, the partnership posted robust results
with both earnings and revenues beating the Zacks Consensus
Estimate. The top and bottom lines benefited from higher volumes in
Kinder Morgan's interstate pipeline network. In the first quarter,
the partnership also increased its quarterly cash distribution per
common unit to $1.38 ($5.52 annualized), reflecting year-over-year
growth of 6%.
Although Kinder Morgan has stability in cash flow owing to
its quality pipeline and storage assets, we believe that
higher gasoline and feedstock prices will marginally increase the
risk profile of the partnership's refined product pipeline assets.
Stocks That Warrant a Look
While we expect Kinder Morgan to perform in line with its peers,
one can consider stocks like
Targa Resources Partners LP
Boardwalk Pipeline Partners LP
) as attractive picks in the near term. All these stocks sport a
Zacks Rank #1 (Strong Buy).
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