On Jan 27, we reaffirmed our long-term Neutral recommendation
Kinder Morgan Energy Partners L.P.
) - the largest independent owner and operator of petroleum
product pipelines in the U.S. The reiteration was backed by the
partnership's better-than-expected fourth quarter 2012 results,
history of increasing distributions and lucrative projects. These
were however partially dampened by an uncertain macro
Why the Reiteration?
Kinder Morgan reported its fourth quarter financial results on
Jan 16. Earnings from continuing operations of 75 cents per
limited partner unit (excluding certain items) beat our
expectation of 67 cents. The outperformance was aided by higher
volumes in its interstate pipeline network. The partnership also
delivered positive performances across each of its business
More importantly, management hiked its quarterly cash
distribution rate by 11% year over year. This latest payout marks
the 46th consecutive quarterly distribution hike by the pipeline
operator. It was fueled by incremental contribution from the
dropdown of Tennessee Gas Pipeline (TGP) and a portion of El Paso
Natural Gas (EPNG), growth opportunities in the coal export
business as well as robust oil yield.
The partnership will now spend approximately $11 billion in
organic projects through 2015. For 2013, nearly $3 billion is
planned for expansion and acquisitions. Kinder Morgan is reaping
benefits from the recent boom in oil and gas exploration in the
North American shale formations as most of these basins have very
few or no transportation infrastructure.
Key organic projects comprise the recently upsized Trans Mountain
expansion project, the BOTSCO terminal, and the Galena Condensate
Processing facility. All these projects are expected to be value
accretive to the partnership.
Kinder Morgan also plans to take over
Copano Energy LLC
) for about $3.22 billion in stock. This would spread its
footprint in Texas, Oklahoma and Wyoming. The purchase price will
reach about $5 billion, including debt.
However, Kinder Morgan's distribution growth prospects are
closely linked to the successful completion of organic growth
projects. This, in turn, might be adversely affected by
operational hindrance or delays in completion. Again, it remains
vulnerable to macro conditions, unstable oil and gas prices and
interest rate fluctuations.
We see no earnings momentum for the stock over the last 30 days
for the first quarter of 2013 as well as full-year 2013. The
Zacks Consensus Estimates for the first quarter and full-year
2013 are currently pegged at 63 cents and $2.55 per unit,
reflecting a year-over-year increase of 37.0% and 10.2%,
Other Stocks to Consider
Currently, the units of Kinder Morgan retain a Zacks Rank #3
However, there are certain other pipeline companies like
Access Midstream Partners, L.P.
Atlas Pipeline Partners L.P.
) that offer value and are worth buying now. These companies
sport a Zacks Rank #2 (Buy).
ACCESS MIDSTRM (ACMP): Free Stock Analysis
ATLAS PIPLN PTR (APL): Free Stock Analysis
COPANO EGY LLC (CPNO): Free Stock Analysis
KINDER MORG ENG (KMP): Free Stock Analysis
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