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Will Kinder Morgan (KMI) Disappoint This Earnings Season?

Midstream energy assets operator, Kinder Morgan, Inc.KMI is expected to report third-quarter 2015 earnings on Oct 21, after the closing bell.

In the last quarter, the company's earnings of 15 cents per share not only missed the Zacks Consensus Estimate of 19 cents but also decreased 80% from the year-ago earnings of 27 cents. Let's see how things are shaping up prior to the announcement.

Factors Likely to Affect Earnings

The recent reorganization of Kinder Morgan companies into a single entity has created the largest midstream company in North America. This will facilitate access to additional projects and hence, lead to improved growth. We believe that the company's size will prove to be advantageous with opportunities to build smaller adjacent pipelines at a lower cost than its peers.

Further, an increased demand for power generation and exports are expected to drive continued infrastructure build-out for the company in the coming quarters. Such positives are likely to boost the third-quarter earnings as well.

Kinder Morgan increased its second-quarter 2015 dividend by 14% to $0.49 a share from $0.42 paid during second-quarter 2014. This upward trend may be continued into the third quarter. Per the company's projections for 2015 it is expected to declare dividends of $2.00 per share, up about 15% over the 2014 dividend of $1.74 per share.

Kinder Morgan is undergoing numerous large scale projects that could face delays or opposition, which in turn, are likely to defer cash flow realizations. In this respect, it is worth mentioning about the TransMountain pipeline expansion in Canada, which has already been deferred by nine months due to local opposition and Canadian regulations.

The project is expected to cost approximately $5.4 billion, which signifies about 30% of Kinder Morgan's project backlog. Any further delay in the project will have an adverse impact on the company's earnings as well as long-term growth.

Further, we believe that gas infrastructure opportunities are limited to the near-to-medium term, given low basis differentials and reduced dry gas drilling. The only positive we see for natural gas infrastructure is the Marcellus shale development.

Earnings Whispers

Our proven model does not conclusively show that Kinder Morgan is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. This is not the case here, as you will see below.

Zacks ESP : Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. The Most Accurate estimate for Kinder Morgan stands at 18 cents, while the Zacks Consensus Estimate is pegged at 19 cents.

Zacks Rank : Kinder Morgan carries a Zacks Rank #4 (Sell), which lowers the predictive power of ESP. We caution against Sell-rated stocks (#4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the same space which, according to our model, that have the right combination of elements to post an earnings beat this quarter:

Natural Gas Services Group Inc. NGS has Earnings ESP of +21.05% and a Zacks Rank #1 (Strong Buy).

Sprague Resources LP SRLP has Earnings ESP of +1.12% and a Zacks Rank #1.

Spectra Energy Partners, LP SEP has Earnings ESP of +9.33% and a Zacks Rank #2 (Buy).

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KINDER MORGAN (KMI): Free Stock Analysis Report

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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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