Why Kinder Morgan (KMI) Is Losing Power Today

NEW YORK (TheStreet) -- Energy company Kinder Morgan (KMI) was trading lower on Wednesday after El Paso Pipeline Partners (EPB), a sister company under the Kinder Morgan umbrella, posted disappointing dividend guidance.

By late morning Wednesday, Kinder Morgan had shed 5.4% to $33.14, and El Paso Pipeline had plummeted 9.4% to $36.73.

El Paso Pipeline disappointed with a forecast of $2.60 a share dividend for 2014, 8 cents short of consensus. The company expects to issue a $2.55 a share dividend for this year.

Kinder Morgan executives said they expect a $1.72 a share dividend for fiscal year 2014, a nickel lower than analysts at Thomson Reuters had expected. However, the forecast is around 8% more than the $1.60 a share expected in 2013.

TheStreet Ratings team rates Kinder Morgan Inc as a Hold with a ratings score of C. The team has this to say about its recommendation:

"We rate Kinder Morgan Inc a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk and feeble growth in the company's earnings per share."

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

  • The revenue growth greatly exceeded the industry average of 5.4%. Since the same quarter one year prior, revenues rose by 30.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • 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 43% when compared to the same quarter one year prior, rising from $200 million to $286 million.
  • 40.15% is the gross profit margin for Kinder Morgan Inc which we consider to be strong. Regardless of KMI's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, KMI's net profit margin of 7.61% compares favorably to the industry average.
  • Kinder Morgan Inc's earnings per share declined by 12.9% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, Kinder Morgan Inc increased its bottom line by earning $1.22 a share vs. 55 cents a share in the prior year. For the next year, the market is expecting a contraction of 16.8% in earnings ($1.02 vs. $1.22).
  • The debt-to-equity ratio is very high at 2.71 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.35, which clearly demonstrates the inability to cover short-term cash needs.

TheStreet Ratings team rates El Paso Pipeline Partners as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate El Paso Pipeline Partners (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. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, good cash flow from operations, expanding profit margins and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

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

  • EPB's revenue growth has slightly outpaced the industry average of 5.4%. Since the same quarter one year prior, revenues slightly increased by 0.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, El Paso Pipeline Partners' return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • Net operating cash flow has increased to $233.00 million or 18.27% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 1.02%.
  • The gross profit margin for El Paso Pipeline Partners is currently very high, coming in at 70.73%. 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 38.21% significantly outperformed against the industry.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

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