August 12 Premarket Briefing: 10 Things You Should Know

NEW YORK (TheStreet) -- Here are 10 things you should know for Tuesday, Aug. 12:

1. -- U.S. stock futures were rosy early Tuesday across the board, as investors assessed potential changes to the energy field with the Kinder Morgan (KMI) reorganization foremost in mind.

European stocks shrank early Tuesday, as renewed uncertainty in the Ukraine helped push Germany’s market downwards and the French current account deficit gaped wider as a result of the huge fine French banking giant BNP Paribas  (BNPQY)  paid to U.S. regulators last month. The London market showed little movement.

2. -- The economic calendar in the U.S. on Tuesday is relatively quiet, with the monthly Treasury budget appearing at 2 p.m.

3. -- U.S. stocks on Monday had strong intraday gains, but gave back much of those gains by the close. Markets took a breather from geopolitical concerns, as Russia appeared to step back from the brink over Ukraine and there were hopes that U.S. airstrikes in Iraq may have slowed the advance of Islamist rebels there. A renewed three-day ceasefire between Israel and Hamas in Gaza also played a role in the improved mood.

The Dow Jones Industrial Average (DIA) closed up 0.1%, to 16,569.98. The S&P 500 (SPY) rose 0.28% to 1,936.92. The Nasdaq (QQQ) jumped 0.7% to 4,401.33.

4. -- Houston-based oil pipeline company Kinder Morgan (KMI) announced that it will spend $71 billion to consolidate its master limited partnership empire of Kinder Morgan Energy Partners (KMP), Kinder Morgan Management (KMR) and El Paso Pipeline Partners (EPB) into one company, traded under the ticker KMI. The deal is massive, and Wall Street spent all day digesting it.

Kinder Morgan stock rallied all day Monday, up 9% to $39.37. In premarket trading the stock gained another 0.2%. The soon-to-be-acquired stocks also rallied.

CEO Rich Kinder made $1.5 billion in share value alone yesterday. And the condensed stock will have a simpler structure, without the required dividend payouts for MLPs.

There may be larger implications for other MLP companies, and the energy sector will also need to figure out how the deal changes the landscape

5. -- Amazon (AMZN) is doubling down on its attempt to squeeze Walt Disney (DIS) for price concessions, blocking preorders for Captain America: The Winter Soldier and other DVDs. Online sales of home entertainment are about one-third of the market, and are a key source of profit for entertainment companies. Walmart (WMT) and Barnes & Noble (BKS) are still selling the DVDs as usual.

In its continued drive for low prices, Amazon has been in a months-long battle with book publisher Hachette in a bid to pay the publisher less for e-books. Writers have pushed back, suggesting that Amazon had misquoted Orwell and had pushed writers and publishers too hard.

Amazon is also in hot water for its $800 million in losses this quarter. Amazon's Jeff Bezos has long insisted on the long view on Amazon's profits. The question is whether Amazon is trying to get more concessions from publishers because the "everything store" increasingly needs to support its bottom line. And the hard-line tactics may boost rival retailers.

6. -- Caesars Entertainment (CZR), the casino operator, lost money on weak business in Atlantic City, despite a strong quarter in Las Vegas. The company has not booked a profit since 2009.

Caesars has suffered from a weak economy, a heavy debt load, and a failure to gain a casino license in Macau. Caesars stock was going for $13.01 in premarket trading, down 4.8%.

7. -- Nuance Communications (NUAN), maker of speech-recognition software like Dragon NaturallySpeaking, missed analyst expectations on its third-quarter revenue but met profit-per-share estimates as reported yesterday. Its new forecast is lower than expected.

Nuance shares have sagged since then by 10.9%, to $16.12 in premarket trading. 

8. -- The U.S. Postal Service has hiked its rates and increased shipping and packaging revenue by 6.6% to $3.2 billion and standard mail revenue by 5.1% to $4.2 billion. But it still booked a $2 billion loss for the quarter ending June 30. A year ago, the USPS booked a $740 million loss. Plus, in its prior quarter this year, the USPS lost $1.9 billion. For 21 out of the past 23 quarters, the post office has lost money.

But these losses don't really reflect business conditions for the post office -- instead they are due to a 2006 Congressional mandate that the USPS pre-fund its retiree health benefits.

The post office also said that it wanted to reinvest in its infrastructure, which will cost up to $10 billion more. 

9. -- BuzzFeed, the click-bait Web site, received a $50 million investment from venture capital firm Andreessen Horowitz, pushing the site's estimated value to $850 million. The new cash will help BuzzFeed build a new section for lifestyle content, as well as allow BuzzFeed to acquire competitors and start a tech incubator in-house.

Rumor had it that Walt Disney was interested in buying the media site, but balked at the $1 billion price investors wanted. 

10. -- A top shareholder in Valeant Pharmaceuticals (VRX), ValueAct Capital, said that there's no need for Valeant to acquire Allergan (AGN). A long bidding war is a distraction, ValueAct CEO Jeff Ubben told Reuters in an interview. ValueAct owns 5.7% of Valeant stock and is the company's third-largest stockholder.

Valeant stock was off 1.76% in premarket trading, to $107.25. Allergan was down 2.19% to $153.39.

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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).
Nora Morrison is an editor, writer and researcher on music, popular culture and business. She is an associate editor at TheStreet, and is on Twitter at No Ticker.

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