Kinder Morgan, Inc.’s KMI share price plunged more than 18% over this week amid the high volatility in commodity price environment and macro uncertainties.
This massive fall in stock price raised concerns among Kinder Morgan investors. The shareholders – mainly income investors – are some of the most loyal but also the most fidgety. Other factors that raised anxieties are ratings updates on the company by different institutions.
Per Fitch Ratings, five-year credit default swaps on Kinder Morgan have widened out 28% over the past week and nearly 400% year to date. It also added that the company’s credit default swap are currently at their widest level in seven years. Moreover, Kinder Morgan’s debt rating is currently B+ after being consistently at BBB/BBB- for much of the past year.
Earlier this week, Moody’s also downgraded its outlook on the company’s debt to negative, while Argus Research lowered its outlook on the stock to “Hold” from “Buy.”
However, an analyst from Raymond James remained indifferent to these views and displayed optimism about the company’s ability to grow distributions or fund its capital budget.
Also, Kinder Morgan’s recent purchases like Harold Hamm's percentage of Continental Resources Inc.’s CLR Bakken pipelines was deemed to be unreasonably increasing debt pressure on its dividend.
Nonetheless, the company’s strong fundamentals have been exhibited through the continued increase in distributable cash flow throughout 2015, up 22% year over year to be precise. This is impressive given the challenges faced by the company due to a completely commodity centric business.
Moreover, investors have tremendous faith on the company’s management as it has shown credibility and foresight in its operations. Therefore, its decision to buy the new businesses cannot be called faulty. It is management’s efficiency that has helped Kinder Morgan become one of the three largest pipeline companies in the U.S.
In view of the above discussions, supporting dividend for another two years even without any increase in oil and natural gas prices is not likely to be a major issue for the company.
Kinder Morgan carries a Zacks Rank #3 (Hold). Some better-ranked players from the broader energy sector are Energy Transfer Equity, L.P. ETE and Boardwalk Pipeline Partners, LP BWP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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