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TheStreet Open House

Why Kinder Morgan Partners (KMP) Is Lower

NEW YORK (TheStreet) -- Kinder Morgan Partners (KMP) is lower on Monday after an article in Barron's over the weekend turned bearish on one of the nation's largest providers of energy infrastructure.

By early afternoon, shares had taken off 4.6% to $74.80. Trading volume of 7 million was more than four times its three-month daily average.

In editorial over the weekend, the financial media company argued the Houston-based business erroneously calculated its distributable cash flow in relation to its various businesses, particularly oil production, a segment which accounts for almost 20% of annual cash flow.

In a note on Monday, Deutsche Bank analyst Curt Launer defended the company, arguing the article cites old inaccuracies management has since rectified.

"The current issue of Barron's brings back the maintenance capex, GP vs LP and coverage ratio issues that have been raised about KM before. It remains our opinion that KM stands out favorably in the group in these measures as well as in disclosure related to them. It seems that the trigger for the Barron's article was the KMP equity offering last week, clearly a common feature of MLPs to fund growth capex, that Barron's makes sound unique to Kinder," wrote Launer in the report.

Last week, Kinder Morgan Partners said it was commencing a public offering of 6.9 million units

"The KM maintenance capex is in line or above industry averages and the claim that the maintenance capex for the pipelines was drastically reduced does not become accurate because Barron's is repeating it. Our current valuation information shows KMI trading at 12.3x ebitda vs the group average of 15.5x. KMP shows a yield of 6.9% vs the average of 6.5% for the large diversified MLPs that have General Partner burdens," added Launer.

Deutsche Bank reiterates Kinder Morgan Inc (KMI) as a "buy" with a price target of $42, and Kinder Morgan Partners as a "buy" with a $90 price target.

TheStreet Ratings team rates KINDER MORGAN ENERGY -LP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate KINDER MORGAN ENERGY -LP (KMP) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, impressive record of earnings per share growth, compelling growth in net income, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 3.3%. Since the same quarter one year prior, revenues rose by 35.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • KINDER MORGAN ENERGY -LP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, KINDER MORGAN ENERGY -LP turned its bottom line around by earning $1.64 versus -$0.33 in the prior year. This year, the market expects an improvement in earnings ($2.69 versus $1.64).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Oil, Gas & Consumable Fuels industry. The net income increased by 70.1% when compared to the same quarter one year prior, rising from $405.00 million to $689.00 million.
  • Net operating cash flow has increased to $956.00 million or 18.02% when compared to the same quarter last year. In addition, KINDER MORGAN ENERGY -LP has also vastly surpassed the industry average cash flow growth rate of -51.05%.
  • 39.07% is the gross profit margin for KINDER MORGAN ENERGY -LP which we consider to be strong. Regardless of KMP's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMP's net profit margin of 20.37% significantly outperformed against the industry.

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