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What's in the Cards for Kinder Morgan (KMI) in Q4 Earnings?

Zacks Equity Research
Updated

Kinder Morgan Inc KMI is expected to post fourth-quarter 2017 earnings on Jan 17.

Last quarter, the company delivered an earnings surprise of 7.1%. Moreover, Kinder Morgan delivered an average positive earnings surprise of 1.8% in the last four quarters. Let’s see how things are shaping up prior to the announcement.

Which Way are Estimates Treading?

Let’s look at the estimate revisions to get a clear picture of what analysts are thinking about the company before earnings release.

The Zacks Consensus Estimate of 18 cents for the fourth quarter has been stable in the last 30 days. It reflects growth of about 12.5% from the year-ago quarter.
 
Further, analysts polled by Zacks expect revenues of $3,324 million for the impending quarter, down 0.2% from the prior-year quarter.

Factors to Consider

Kinder Morgan has the largest network of natural gas pipelines in North America, spread over almost 70,000 miles. Notably, the company’s midstream properties are linked to all the prospective plays in the United States, which are rich in natural gas.

These extensive networks of natural gas pipelines, for which the company has invested billions of dollars, provide stable fee-based revenues. In fact, Kinder Morgan expects 91% of its 2017 cash flow generation to come from fees charged for midstream properties. The revenues from midstream properties will be reflected in the quarterly results.

However, Kinder Morgan’s weak balance sheet is a concern. As of third-quarter 2017, total debt — short and long term — is pegged at $38.3 billion. Debt capital is higher than total equity capital of $36.5 billion which depicts the company’s significant exposure to debt. If debt continues to grow, the company may face liquidity issues.

Moreover, the company’s Trans Mountain pipeline expansion faces threats. Being a part of the legal dispute, the successful appeal is expected to nullify the federal sanction for the C$7.4-billion or $5.9-billion Trans Mountain project and result in long postponement. This will be a major drawback for the company.

Price Performance in Q4

During the quarter, Kinder Morgan has underperformed the industry. In the aforesaid period, the stock has lost 5.8% compared with the industry’s decline of 3%.



 

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Earnings Whispers

Our proven model does not conclusively show that Kinder Morgan is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP for the company is -1.16%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Kinder Morgan carries a Zacks Rank #3 (Hold).

Conversely, we caution investors against stocks with a Zacks Rank #4 or 5 (Sell Rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Though earnings beat looks uncertain for Kinder Morgan, here are some firms that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat this quarter:

Headquartered in Irving, TX, Pioneer Natural Resources Company PXD is an independent oil and gas exploration and production company. The company has an Earnings ESP of +2.45% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Headquartered in Houston, TX, Cabot Oil & Gas Corporation COG is an independent oil and gas exploration company with producing properties mainly in the continental United States. The company has an Earnings ESP of +2.81% and sports a Zacks Rank #1.

Headquartered in Houston, TX, Occidental Petroleum Corporation OXY is an integrated oil and gas company, with significant exploration and production exposure. The company has an Earnings ESP of +8.28% and sports a Zacks Rank #1.

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Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
 
Pioneer Natural Resources Company (PXD) : Free Stock Analysis Report
 
Cabot Oil & Gas Corporation (COG) : Free Stock Analysis Report
 
Occidental Petroleum Corporation (OXY) : Free Stock Analysis Report
 
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