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Why Is Kinder Morgan (KMI) Down 7.1% Since Last Earnings Report?

It has been about a month since the last earnings report for Kinder Morgan (KMI). Shares have lost about 7.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Kinder Morgan due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Kinder Morgan Q3 Earnings Miss Estimates

Kinder Morgan reported third-quarter 2021 adjusted earnings per share of 22 cents, missing the Zacks Consensus Estimate of 24 cents. The bottom line, however, increased from the year-ago profit of 21 cents.

Total revenues surged to $3,824 million from $2,919 million in the prior-year quarter and beat the Zacks Consensus Estimate of $3,375 million.

The company’s lower-than-expected earnings were owing to Fayetteville Express Pipeline’s lower contributions. Rebound in fuel demand, however, attributed to year-over-year higher earnings and strong revenues.

Kinder Morgan expects the negative impact on volumes in the third quarter owing to the emergence of coronavirus’ Delta variants to lose strength in the December quarter.

Segment Analysis

Natural Gas Pipelines: For the September quarter of 2021, adjusted earnings before depreciation, depletion and amortization expenses, including amortization of the excess cost of equity investments (EBDA), rose marginally to $1,090 million from $1,082 million a year ago. An increase in contributions from Texas intrastate systems and Permian Highway Pipeline primarily aided the segment. Fayetteville Express Pipeline’s lower contributions offset the positives partially.

Products Pipelines: The segment’s EBDA for the third quarter was $280 million, reflecting a jump from $269 million a year ago. Recovery in demand for refined products, with the gradual reopening of the economy, has aided the business unit.

Gasoline transported volumes increased more than 8% year over year in the September quarter, while jet fuel volumes skyrocketed 56.3%.

Terminals: Through this segment, Kinder Morgan generated quarterly EBDA of $233 million, down from the year-ago period’s $246 million. A decline in liquids utilization was responsible for the underperformance.

CO2: The segment’s EBDA was recorded at $154 million, in line with the year-ago figure. The segment was aided by increased realized NGL prices and volumes, offset fully by a decline in CO2 sales and crude volumes.

Operational Highlights

Expenses related to operations and maintenance totaled $614 million, down from $643 million a year ago. Total operating costs increased to $2,980 million for the third quarter from $2,100 million in the corresponding period of 2020.

DCF

The company’s third-quarter distributable cash flow (DCF) was $1,013 million compared with $1,085 million a year ago.

Balance Sheet

As of Sep 30, 2021, Kinder Morgan reported $102 million in cash and cash equivalents. The company’s long-term debt amounted to $28,988 million at quarter-end, resulting in a debt to capitalization of 50.7%.

2021 Guidance

The company continues to project DCF and adjusted EBITDA for this year at $5.4 billion and $7.9 billion, respectively. The midstream firm anticipates its 2021 net income at $1.7 billion. For this year, the midstream player expects to announce a dividend payout of $1.08 per share, reflecting a year-over-year increase of 3%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Kinder Morgan has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision looks promising. Notably, Kinder Morgan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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