Balanced View on Kinder Morgan - Analyst Blog

We have maintained our Neutral recommendation on Kinder Morgan Energy Partners L.P. ( KMP ) on Apr 29, 2014. The partnership carries a Zacks Rank #3 (Hold).

Why Maintained?

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 Unit Corp ( UNT ), Targa Resources Partners LP ( NGLS ) and Boardwalk Pipeline Partners LP ( BWP ) as attractive picks in the near term. All these stocks sport a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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