Kinder Morgan Inc (NYSE:KMI) was a notable decliner during Monday’s trading session declining by 3.5% on above average volumes, which were 5 times the average turnover. The formation of lower tops and lower bottoms on the charts is indicative that bears are using rallies in the stock as a selling opportunity. Kinder Morgan currently trades below all important moving averages. The index measuring relative strength continues to slide lower and is a cause for concern. Momentum indicators clearly suggest that bears have the upper hand at the moment. The stock currently hit a fresh 52-week low during the trading session.
Against all odds, Kinder Morgan Inc (NYSE:KMI) has continued to focus on the production of natural gas. The oil & gas market has been going slow, owing to oversupply. Although other companies in the oil & gas sector have been exercising cost cuts and slowing down operations, KMI continues to be undeterred. However, there is some good news for KMI investors. The company has recently announced a hike in dividend payouts. Additionally, the company has also undertaken several reorganization initiatives, which have helped simplify its business. This has led to the development of a single large company, the largest midstream company in North America.
The large size of KMI is both an advantage and a disadvantage for investors. Even though it provides the company with the opportunity cater to a wider range of projects and execute them at a lower cost than its competitors. Additionally, once the demand for oil & gas increases, KMI can make the most of its position. However, the reality is quite different for the short term. Currently, the oil & gas prices are at a low and this directly affects the company’s business. Unless KMI is able to make something in the international markets, the investors would have little to look forward to.
After reporting the 3Q2015, the company decided to increase its yearly dividend by 16%, to $2 per share for FY2015. Additionally, the company has identified projects with significant growth prospects to be undertaken over a span of 5-years. The total cost of these projects would be $17.6 billion. The company has already spent $2.6 billion on these projects in the current year. If these projects turn out to be as profitable as the company believes, it would help support the recent dividend hike by KMI.
KMI’s reorganization program has yielded some positive results as the company reported a decline of 22% in its operating expenses. However, operating margins also fell from 33% to 19.4%. However, the financial situation of KMI still seems to be strong. At the end of the 3Q2015, KMI had $179 million in cash and cash equivalents, but an estimated $39.7 million in long term debt. Additionally, the company also plans to increase its dividend payout by 10% at the end of FY2016.
Unfortunately, KMI also has a number of large scale projects, which could face opposition and delays, leading to a delay in cash flow realizations. The Trans Mountain pipeline in Canada is a perfect example for this case. The project has already faced a 9-month long delay, owing to regulatory approvals and local opposition. The project is a part of the company’s backlog program and is expected to cost $5.4 billion. Such delays tend to translate to lower earnings and slower growth.
The only major problem with KMI is the lack of flexibility in its business. The company solely serves the oil & gas industry, which has yet to show any significant signs of improvement. Even though the company has the largest value of assets in North America and the third largest in the world, it still needs to look towards international markets if it wants to improve its revenues and hold on to its financial position.
Furthermore, the company not only needs to export its products to the international markets, but also invest in those markets as well. This is important because most of the current KMI projects in North America have been suffering from delays and this is severely limiting the company’s growth prospects. Added to this the company has set its sight on some high targets, which are based on the timely completion of KMI projects and the improvement of oil & gas in the market. However, this does not seem to be happening anytime soon.