KMP Remains on Growth Path - Analyst Blog

The largest independent owner and operator of petroleum product pipelines in the U.S., Kinder Morgan Energy Partners L.P. (KMP) announced a 4.5% annualized increase in its cash distribution rate (or $4.60 vs. $4.40 per unit in 2010) for 2011. Total payout to its limited partners will be around $1.5 billion. At the same time, the partnership also retains its 2010 targeted distribution growth rate of 4.8% year over year.

Kinder Morgan generally serves as a benchmark for the master limited partnership (MLP) group. A focus on fee-based and diversified businesses has enabled the partnership to spread out its business risks, continue growing and increase cash flow. Management projected over $3.6 billion in segment earnings before depreciation, depletion & amortization for 2011, an increase of more than $340 million over the 2010 forecast.

Kinder Morgan's asset base is not sensitive to commodity prices and helps it to generate adequate cash even in a weak economic condition. Additionally, better-than-expected oil production and price environment will positively impact the partnership's underlying valuation.

The partnership's growth momentum continues with organic and inorganic means. Although it slipped in the third quarter, quarterly cash distribution per common unit was increased to $1.11 ($4.44 annualized), representing 6% year-over-year growth.

The board of directors will review and approve Kinder Morgan's 2011 budget at its January meeting. The budget will be discussed in detail during the company's annual analyst meeting on January 27, 2011, in Houston.

We believe the CO₂ business is a major growth avenue for Kinder Morganbut are concerned about its increased dependence on this business segment. Intense competition from MLPs such as Enterprise Products Partners (EPD), Enbridge Energy Partners (EEP) and Energy Transfer Equity (ETE) is an added cause for concern. We keep our Neutral recommendation for Kinder Morgan units unchanged with the Zacks #3 Rank (Hold).

 
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