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Why El Paso Pipeline Partners (EPB) Stock Is Surging Today

Stocks in this article: EPB

NEW YORK (TheStreet) -- El Paso Pipeline Partners  (EPB) surged Monday after Kinder Morgan  (KMI) announced it would combine all of its oil and gas pipeline and storage companies into one entity.

Kinder Morgan, Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR) and El Paso Pipeline Partners will all trade under the KMI symbol as part of the Kinder Morgan umbrella. The new entity will be the fourth-largest U.S. energy company by market value. The four companies' combined market value at the closing bell Friday was $92 billion.

Kinder Morgan will spend $71 billion, including $27 billion in assumed debt, to purchase the three other companies.

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El Paso Pipeline Partners was up 18.73% to $39.89 at 10:25 a.m. More than 9 million shares had changed hands, compared to the average volume of 654,116.

Separately, TheStreet Ratings team rates EL PASO PIPELINE PARTNERS LP as a "buy" with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate EL PASO PIPELINE PARTNERS LP (EPB) 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. Among the primary strengths of the company is its expanding profit margins over time. We feel these strengths outweigh the fact that the company has had somewhat weak growth in earnings per share."

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

  • The gross profit margin for EL PASO PIPELINE PARTNERS LP is currently very high, coming in at 76.77%. Regardless of EPB's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, EPB's net profit margin of 37.11% significantly outperformed against the industry.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 2.1%. Since the same quarter one year prior, revenues slightly dropped by 1.7%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Reflecting the weaknesses we have cited, including the decline in the company's earnings per share, EPB has underperformed the S&P 500 Index, declining 20.50% from its price level of one year ago. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it is one of the factors that makes this stock an attractive investment.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market on the basis of return on equity, EL PASO PIPELINE PARTNERS LP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • EL PASO PIPELINE PARTNERS LP's earnings per share declined by 20.0% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, EL PASO PIPELINE PARTNERS LP reported lower earnings of $1.86 versus $2.15 in the prior year. For the next year, the market is expecting a contraction of 10.2% in earnings ($1.67 versus $1.86).
  • You can view the full analysis from the report here: EPB Ratings Report

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Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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