[cnxvideo id=”655246″ placement=”ros”]The country’s second-largest energy infrastructure company, Kinder Morgan Inc. (NYSE: KMI), will report first-quarter 2017 earnings after markets close Wednesday. Analysts have forecast earnings per share (EPS) of $0.18, flat with the same period last year, and revenues of $3.35 billion, up 5% year over year.
In a note to investors published Wednesday morning, analysts at Jefferies see Kinder Morgan’s total earnings before depletion, depreciation and amortization improving by 2.9% sequentially, but falling 1.3% year over year. Net income is forecast to dip 5.9% sequentially and 4.2% year over year.
The analysts noted four major transactions among master limited partnerships (MLPs) in the first quarter, all either drop-downs or simplification moves, that are expected to lower the cost of capital for the MLPs and other companies in the sector.
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Another significant change in the space is the elimination of a general partner’s (GP’s) incentive distribution rights (IDRs). The analysts noted:
[A]s some entities eradicate their IDR structures and the associated conflicts of interest between their two equity groups, a prisoner’s dilemma takes shape for those which remain: the asset-lite GPs may continue enjoying its free ride on the back of an IDR-laden affiliate MLP, but with each passing peer transaction it is rendered increasingly less competitive. In this vein, it seems 1Q17 proved to be a tipping point for Midstream MLPs as many determined the structural costs outweighed the longer-term capital cost & growth benefits provided via corp. simplification.
Jefferies raised its rating on two MLPs: Energy Transfer Equity L.P. (NYSE: ETE) was raised to Buy and National Fuel Gas Co. (NYSE: NFG) was raised to Hold.
Energy Transfer Equity’s associated MLP, Energy Transfer Partners L.P. (NYSE: ETP), is forecast by Jefferies to post adjusted EBITDA of about $1.5 billion, in line with the consensus estimates. The analysts also expect earnings per common unit of $0.25, a sequential decline of nearly 45% and a year-over-year decline of nearly 35%. The consensus earnings estimate is $0.18 per common unit on revenues of $6.7 billion. For the full year, Jefferies estimates earnings of $1.49 per common unit, compared with a consensus estimate of $1.42. The common units traded up about 0.7% late Wednesday morning, at $35.29 in a 52-week range of 31.64 to $43.50. The consensus price target is $43.90.
Jefferies estimates National Fuel Gas to report EPS of $1.10, well above the consensus estimate of $1.04. The analysts downgraded the company to Underperform about 10 days ago following the rejection of a permit to construct a new pipeline in New York. The ensuing 12% dip in the share price has led Jefferies to up its rating to Hold with a price target of $52. Shares traded this morning at $54.21, in a 52-week range of $50.61 to $61.25, and the consensus price target is $61.50.
Enterprise Products Partners L.P. (NYSE: EPD) is the country’s largest MLP/infrastructure company, with a market cap of around $59 billion. Jefferies is looking for net income of $717 million, up 4.4% sequentially and 9.1% year over year in the first quarter. Adjusted EBITDA is forecast at $1.4 billion, above the consensus estimate of $1.37 billion and distributable cash flow is estimated at $1.04 billion. Consensus estimates call for earnings per common unit of $0.32 (Jefferies forecasts $0.34) and revenues of $6.14 billion. Jefferies has a Buy rating on the stock with a price target of $33. Shares traded late Wednesday morning at $27.80, down about 0.7%, in a 52-week range of $24.01 to $30.25. The consensus price target is $32.92.
As for Kinder Morgan, the stock traded down about 0.2% Wednesday morning, at $21.12 in a 52-week range of $16.63 to $23.36. The consensus price target is $25.33. Jefferies rates the stock a Hold with a price target of $23 and an EPS estimate of $0.66 for the year, slightly below the $0.69 per share consensus. Kinder Morgan said in January that it intends to pay an annual dividend of $0.50 in 2017.
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