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Can Kinder Morgan (KMI) Pull a Surprise in Q3 Earnings?

Zacks

Midstream energy assets operator, Kinder Morgan, Inc. KMI is expected to report third-quarter 2016 earnings on Oct 19, after the closing bell.

Last quarter, the company’s earnings of 15 cents per share came in line with the Zacks Consensus Estimate and were also flat with the year-ago quarter. Let’s see how things are shaping up prior to the announcement.

Factors to Consider This Quarter

Kinder Morgan’s consistent efforts to reduce costs and restrict capital expenditures to only those projects that offer high returns should improve margins as well as partly offset the impact of the low commodity price environment.

Further, Kinder Morgan is one of the largest midstream companies in North America. We believe that the company’s size will prove to be advantageous with opportunities to build smaller adjacent pipelines at a lower cost than its peers. Further, an increased demand for power generation and exports are expected to drive continued infrastructure build-out for the company in the coming quarters. We expect the same factor to aid the company’s third-quarter results as well.

KINDER MORGAN Price and EPS Surprise

KINDER MORGAN Price and EPS Surprise | KINDER MORGAN Quote


However, we believe that gas infrastructure opportunities are limited to the near-to-medium term. This is mainly due to low basis differentials and reduced dry gas drilling. The only positive we see for natural gas infrastructure is the Marcellus shale development.

Moreover, we remain concerned about Kinder Morgan's high debt levels, which makes the company vulnerable to an extended downturn. As of Jun 30, 2016, Kinder Morgan had total debt of around $38 billion.

Earnings Whispers

Our proven model does not conclusively show that Kinder Morgan will beat estimates 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, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate for Kinder Morgan stand at 15 cents.

Zacks Rank: Kinder Morgan carries a Zacks Rank #3 (Hold). Though a favorable Zacks Rank increases the predictive power of ESP, but an ESP of 0.00% makes surprise prediction difficult.

Conversely, the Sell-rated stocks (Zacks Rank #4 and 5) should never be considered going into an earnings announcement.

Stocks to Consider

While an 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:

Baker Hughes Inc. BHI has an Earnings ESP of +9.09% and a Zacks Rank #2. The company is expected to release earnings results on Oct 25. You can see the complete list of today’s Zacks #1 Rank stocks here.

Denbury Resources Inc. DNR has an Earnings ESP of +50.00% and a Zacks Rank #2. The company is expected to release earnings results on Nov 3.

Enterprise Products Partners LP EPD has an Earnings ESP of +3.33% and a Zacks Rank #3. The company is expected to release earnings results on Oct 27.

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