Friday, June 12, 2015

Update On the Kinder Morgan Short (KMI)

We have quite a bit on this one, links below.
One note on prices. In the piece below Barron's says the stock is up 13% from their post date.

Our results are not nearly as bad, having held fire until Alphaville's Izabella Kaminska wrote an Aug. 18, 2014 piece,"Kinder Morgan, MLPs and the sell case" which we linked to in "The 'Kinder Morgan Is a House of Cards' Theory and the Pros and Cons of Going Short (KMI)". The stock closed that day at $41.14 and closed yesterday at $39.78 leaving you 3.3% to the good but which of course is offset by the 4.80% (annual) dividend you've been paying and the cost of borrowing the stock (pretty cheap).
As I said in the intro to that piece:
...Regarding a short on KMI, I hate paying dividends on short positions.
Hate it, hate it, hate it.
But I might be tempted in this case. And the rate of ascent on the stock is definitely rolling over....
Here's Barron's Read This, Spike That column:

The Bear Case Against MLP Kinder Morgan 
Is the energy-pipeline titan finally due for a fall? Has Wendy’s become the new Mickey D’s?
Sixteen months ago, when shares of master limited partnership (MLP) giant Kinder Morgan were cruising along and paying a 6% dividend yield to boot, Barron’s ran a cover story arguing that the stock was due for a fall. 

The piece, written by veteran writer Andrew Bary, argued that the energy pipeline operator was “about double the valuation of electric utilities, telecom, and cable TV companies, whose expected annual growth is comparable to or better than the projected 5% growth in Kinder Morgan’s distributable cash flow over the next few years.”

Moreover, Bary argued that the MLP calculation of distributable cash flow, an earnings-like measure popular in the industry, uses “some aggressive assumptions about how much it takes to sustain some of the company’s businesses, particularly its oil-production division, which generates almost 20% of annual cash flow. Use more conservative assumptions, and DCF would be lower, and so likely would the distribution and the price of the MLP units.”

The piece generated a fair amount of backlash from readers. MLP lovers are a passionate crowd. Worse for us, the call has been wrong. 

Over the past year, shares of Kinder Morgan (ticker: KMI ) have climbed 13%, several points ahead of the broader stock market, even while the price of the fuel moving through the company’s pipelines has fallen sharply. Indeed, a major argument on behalf of pipeline operators like Kinder Morgan is that their fortunes aren’t tied to the price of fossil fuels. 

But the bear arguments haven’t gone away. In a Tumblr post that appeared Thursday on Yahoo Finance, Brian Nelson, president of the independent investment-research company Valuentum Securities, makes a five-point argument for why shares of Kinder Morgan will “collapse.”
Stating that he is removing the stock from his firm’s dividend growth portfolio, Nelson makes a number of points that touch on the argument Bary made in Barron’s and even go beyond it. 

Like Bary, Nelson thinks that the stock has gotten way overvalued and also questions the solidity of those underlying earnings factored into the valuation. 

But Nelson also argues that the company’s debt load “is downright scary.”...MORE
In a bit of a 'Barron's effect' the stock is off another 2% pre-market at $38.95
Some of our other KMI posts:

Aug. 11 
In Other News: "Kinder Morgan to abandon MLP structure it pioneered, will become 4th biggest US energy company" (KMI) 

Aug. 12, 2014 
Kinder Morgan Creates Money Out of Thin Air
Aug. 12
Asking the Right Question About the Kinder Morgan Deal: Why Now? (KMI)
Aug. 19 
David Cay Johnston on Kinder Morgan’s Evolving Tax Strategy (KMI)
Oct. 14, 2014
Kinder Morgan Has Given Up All the Gains From The August Roll-up (KMI)
Feb. 2, 2015
Oil: A Look At The Incredible Levitating Kinder Morgan Inc. (KMI)

KMI Kinder Morgan, Inc. daily Stock Chart