Kinder Morgan Energy Partners LP (KMP) is a pipeline transportation and energy storage company in North America which operates in five business segments: Products Pipelines, Natural Gas Pipelines, Carbon Dioxide, Terminals, and Kinder Morgan Canada. Kinder Morgan, Inc. (KMI) owns and manages a diversified portfolio of energy transportation and storage assets, through KMP operates or owns an interested in approximately 37,000 miles of pipelines and approximately 180 terminals.
On October 16, 2013, the companies reported third quarter earnings as follows:
Ticker | Actual EPS ($/share) | Estimated EPS ($/share) | Actual Revenue ($ in billions) | Estimated Revenue ($ in billions) |
KMP | 0.51 | 0.61 | 3.28 | 3.07 |
KMI | 0.27 | 0.27 | 3.65 | 3.70 |
KMP is up 0.72% excluding dividends in the past year (up 6.82% including dividends) while KMI is up 0.48% excluding dividends (up 4.62% including dividends), and are losing to the S&P 500, which has gained 28.19% in the same time frame. I currently hold KMI in my growth portfolio and with all this in mind I'd like to take a moment to evaluate both stocks on a fundamental, financial, and technical basis to see if it's worth buying some more stock in the company right now or initiate a new position in KMP.
Fundamentals
KMI
The company currently trades at a trailing 12-month P/E ratio of 36.23, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 24.09 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (0.32), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 113.62%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 113.62%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 44.8%.
KMP
The company currently trades at a trailing 12-month P/E ratio of 22.3, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 29.1 is currently fairly priced for the future in terms of the right here, right now. The forward P/E value that is higher than the trailing twelve month P/E value tells us the story of earnings contraction in the next year. Next year's estimated earnings are $2.74 per share while the trailing twelve month earnings per share were $3.58. The 1-year PEG ratio (1.74), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 12.83%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 12.83%.
Financials
KMI
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 4.62% with a payout ratio of 167% of trailing 12-month earnings while sporting return on assets, equity and investment values of 1.9%, 10% and 5.1%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.62% yield of this company is good enough for me to take shelter in for the time being.
KMP
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 6.61% with a payout ratio of 147% of trailing 12-month earnings while sporting return on assets, equity and investment values of 3.7%, 13% and 8.9%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 6.61% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 17 years at a 5-year dividend growth rate of 7.4%.
Technicals
KMI
(click to enlarge)
Looking first at the relative strength index chart (RSI) at the top, I see the stock approaching overbought territory but flattening out with a value of 61.80. I will look at the moving average convergence-divergence (MACD) chart next. I see that the black line is above the red line with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($35.51), I'm looking at the 200-day simple moving average to act as resistance (currently at $36.56) and the 50-day simple moving average to act as support (currently at $34.83) for a risk/reward ratio which plays out to be -1.91% to 2.96%.
KMP
(click to enlarge)
Looking first at the relative strength index chart (RSI) at the top, I see the waffling around in middle-ground territory but with upward trajectory and a value of 50.22. I will look at the moving average convergence-divergence (MACD) chart next. I see that the black line is about to cross above the red line with the divergence bars increasing in height, indicating bullish momentum. As for the stock price itself ($79.83), I'm looking at the 50-day simple moving average to act as resistance (currently at $80.61) and $79.16 to act as support for a risk/reward ratio which plays out to be -0.84% to 0.98%.
Conclusion
The main difference between the two entities is that the partnership combines the tax benefits of a limited partnership with the liquidity of a publicly traded company. Partnerships are required to return quarterly distributions to the investors and are allowed to avoid corporate income tax at both the state and federal levels. Recently the MLPs have been getting hammered (due to the taper talks) and for that reason I opted to invest in KMI as opposed to KMP at that time. However, after doing this review right now, I would personally not initiate a position in KMP as next year's earnings are projected to be lower than the trailing twelve month earnings. I personally don't like to see future earnings deteriorating in a company. With that said, fundamentally KMI is fairly priced based on next year's earnings but very inexpensive on future growth prospects. Financially KMI pays a "smaller" dividend, but I like it for a place to hide out in. On a technical basis KMP has some upside to go while KMI may be topping out. Right now I'm flat on my position (+0.03%) in KMI and I will continue to hold onto the shares I have, reinvesting the dividends. I will not be initiating a position in KMP and I will not be adding new positions in KMI because I think I can add more to KMI at a cheaper price.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long KMI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
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