NEW YORK (TheStreet) -- I was talking to Jim Cramer today about the big move by Richard Kinder, consolidating his empire of master limited partnerships into the "mothership" company, Kinder Morgan (KMI) - Get Report .
Kinder is abandoning the MLP structure he helped pioneer, largely because he’s been a victim of his own success at it, owning more and more of a percentage of the sub-corporation’s shares and consequently the lion’s share of the distributions that have been made.
This has kept KMI’s subordinated debt at an extremely high level, constrained cash flow and stopped Kinder from making further big deals to increase the size of his pipeline, processing and storage network.
In essence, Kinder Morgan had grown too big to continue to benefit from the MLP structure he helped create.
Only very large MLP entities might benefit from a similar move, restructuring to once again become a C – corporation with regular dividends and not distributions. Of the few candidates, I think Energy Transfer Equity (ETE) and Energy Transfer Partners (ETP) is most likely.
ETP continues to have a tremendous growth profile, the most important sustaining necessity for a great MLP and has continued to increase its distribution regularly. Even without a restructuring, ETP’s 6.6% distribution remains very tasty in this low rate environment.
I talk more about the Kinder Morgan deal with Jim in the video above.
At the time of publication, the author was long ETP, MWE, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates KINDER MORGAN INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate KINDER MORGAN INC (KMI) a BUY. This is driven by multiple strengths, 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, good cash flow from operations, expanding profit margins, increase in net income and notable return on equity. 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 came in higher than the industry average of 2.1%. Since the same quarter one year prior, revenues rose by 16.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share.
- Net operating cash flow has increased to $1,085.00 million or 14.21% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -7.19%.
- 38.48% is the gross profit margin for KINDER MORGAN INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 7.21% trails the industry average.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Oil, Gas & Consumable Fuels industry average. The net income increased by 2.5% when compared to the same quarter one year prior, going from $277.00 million to $284.00 million.
- KINDER MORGAN INC reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, KINDER MORGAN INC reported lower earnings of $1.15 versus $1.22 in the prior year. This year, the market expects an improvement in earnings ($1.23 versus $1.15).
- You can view the full analysis from the report here: KMI Ratings Report
Dan Dicker has been a floor trader at the New York Mercantile Exchange with more than 25 years of oil trading experience. He is a licensed commodities trade adviser.