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What’s in Store for Kinder Morgan (KMI) in Q4 Earnings?


Midstream energy assets operator, Kinder Morgan, Inc. KMI is expected to report fourth-quarter 2016 earnings on Jan 18, after the closing bell.

Last quarter, the company’s earnings of 16 cents per share beat the Zacks Consensus Estimate of 15 cents but decreased from 19 cents reported a year ago. Let’s see how things are shaping up prior to the announcement.

Kinder Morgan, Inc. Price and EPS Surprise

Kinder Morgan, Inc. Price and EPS Surprise | Kinder Morgan, Inc. Quote

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.

Given that 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 these factors to aid the company’s fourth-quarter results as well.

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. In the last one month, shares of Kinder Morgan gained 5.4%, while the Zacks categorized sub industry Oil & Gas- Production/Pipeline industry has increased by 4.2%.

Moreover, we are concerned about Kinder Morgan's high debt levels, which makes the company vulnerable to an extended downturn. As of Sep 30, 2016, Kinder Morgan had total debt of around $37 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 +5.56%. This is because the Most Accurate estimate stands at 19 cents and the Zacks Consensus Estimate for Kinder Morgan is pegged at 18 cents.

Zacks Rank: Kinder Morgan carries a Zacks Rank #4 (Sell). Please note that 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:

EQT Corp. EQT has an Earnings ESP of +10.00% and a Zacks Rank #2. The company is expected to release earnings results on Feb 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Hess Corporation HES has an Earnings ESP of +2.78% and a Zacks Rank #3. The company is expected to release earnings results on Jan 25.

SM Energy Company SM has an Earnings ESP of +2.38% and a Zacks Rank #3. The company is expected to release earnings results on Feb 28.

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