What's In The Cards For Kinder Morgan (KMI) In Q3 Earnings?

Midstream energy assets operator Kinder Morgan Inc (NYSE:KMI) is expected to report third-quarter 2017 earnings on Oct 18.

Last quarter, the company delivered an earnings surprise of 0.00%. However, Kinder Morgan delivered an average positive earnings surprise of 1.67% for the last four quarters. 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

Which Way Are Estimates Treading?

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

The Zacks Consensus Estimate of 14 cents for the third quarter has been stable in the last seven days. It reflects a year-over-year decline of about 12.5% from the year-ago quarter.

Further, analysts polled by Zacks expect revenues of $3,242 million for the impending quarter, down 2.6% from the year-ago quarter.

Factors to Consider

Kinder Morgan has the largest network of natural gas pipelines in North America, spread over almost 70,000 miles. Most importantly, the company’s midstream properties are linked to all the prospective plays in the United States that 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. Much these revenues would be reflected in the to-be-reported quarter.

However, Kinder Morgan’s weak balance sheet is a concern. As of second-quarter 2017, total debt — both short and long term — stands at $37.1 billion. Debt capital is higher than total equity capital of $36.2 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 appeal, if successful, will nullify the federal sanction for the C$7.4-billion or $5.9-billion Trans Mountain project and result in extended postponement. This will be a major drawback for the company.

Price Performance in Q3

During the quarter, Kinder Morgan underperformed the industry. In the aforesaid period, the stock has gained 0.1% compared with the 1.9% increase of the broader industry.

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 -8.08% as the Most Accurate estimate is pegged at 13 cents, while the Zacks Consensus Estimate is at 14 cents. 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.

Please note that we caution investors against stocks with a Zacks Rank #4 or 5 (Strong Sell) 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:

Northern Oil and Gas, Inc (NYSE:NOG) , headquartered in Wayzata, MN, is an exploration and production company. The company has an Earnings ESP of +33.33% and boasts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tesoro Corporation (NYSE:ANDV) , based in San Antonio, TX, is involved in the refining and marketing of petroleum products. The company has an Earnings ESP of +10.44% and sports a Zacks Rank #1.

Gulfport Energy Corporation (NASDAQ:GPOR) owns and operates mature oil and gas properties in the Louisiana Gulf Coast area. The company has an Earnings ESP of +6.08% and sports a Zacks Rank #1.

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