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Kinder Morgan Stock Capitulates, Renews a Rally Fast Taking Shape

The post-earnings KMI news wasn't nearly so bad after all

As of last Thursday, Kinder Morgan (NYSE:KMI) shares looked to be in real trouble. Already fading from a big January-February rally, KMI stock plunged below its pivotal 50-day moving average line in response to a lackluster full-year outlook.

Kinder Morgan Stock Capitulates, Renews a Rally Fast Taking Shape

Things have changed dramatically so far this week, with Kinder Morgan stock bouncing back in a pretty convincing way.

Against a backdrop of still-impressive fiscal progress even with the dialed-back 2019 outlook, last week’s sizable plunge followed by Monday’s rebound may actually hint of a major renewal of an uptrend that at least one analyst expects to take shape from here.

Kinder Morgan Earnings

Kinder Morgan’s first quarter of 2019 was solid enough. Revenue of $1.37 billion produced 60 cents per share worth of distributable cash flow, up 7% year-over-year. Both were better than the guidance of $1.35 billion and 59 cents the company had previously offered.

Ordinary net income was up 14.6%, growing from $485 million in the first quarter of 2018 to $556 million last quarter.

The rest of the year, however, may not be as impressive.

In January, Kinder Morgan had forecast full-year core earnings of $7.8 billion. That figure has since been dialed back to $5 billion, or $2.20 per share of KMI stock. Lower interest expenses won’t be able to fully offset ramped-up spending plans. That spending may include the development of a third Permian Basin gas pipeline to abate a glut of natural gas waiting to be shipped elsewhere.

During the first quarter, completed $200 million worth of expansion projects, and added $600 million worth of infrastructure growth plans to bring the backlog to $6.1 billion.

Decisive Reversal

The knee-jerk response to the contracted guidance makes sense. A stock’s valuation is a relatively arbitrary matter, impacted as much by headlines as results. Changes to plans can rattle investors, even without them knowing exactly why. Mere whispers of lowered core-earnings guidance was enough to shake the stock off of its perch.

Thursday’s big KMI stock setback, however, may have actually served as a sort of capitulation, hitting the reset button on a much bigger rally.

Source: ThinkorSwim

It’s Monday’s bullish action that puts the finishing touches on Thursday’s partial intraday reversal though. Boosting by rebounding oil prices, Monday’s bounce has carried KMI stock back above its 50-day moving average line (purple) as well as the 20-day moving average line (blue). The budding downtrend has been quelled, if it was ever actually taking shape at all.

Raymond James analyst Justin Jenkins doesn’t think it was.

On Thursday, in the midst of the selling, Jenkins maintained an “Outperform” rating on Kinder Morgan stock, and reiterated the firm’s target price of $21. Jenkins argues that returns are actually more important to investors than raw growth is right now, suggesting Kinder Morgan is smartly deploying capital.

Monday’s big gain suggests investors see Jenkins’ point.

Looking Ahead for KMI Stock

There’s not been a highly touted difference between Kinder Morgan and other energy names, but it’s one worth noting. Some oil and gas outfits are spending heavily on growth, perhaps without a great deal of regard to impact on profit.

Exxon Mobil (NYSE:XOM) is arguably at the other end of this spectrum.

In March it announced plans to ramp up capital spending by $4 billion this year, and increase it by roughly the same amount, with much of that CapEx aimed at improving its presence in the natural gas market.

Neither analysts nor investors are convinced the new strategic direction is the wisest use of capital though. Cowen analyst Jason Gabelman noted of the news: “Exxon Mobil’s counter-cyclical investment decision may look prescient in future years, but we do not believe the investor community is willing to place that same bet today and are downgrading the stock as a result.”

The more recently announced offer from Chevron (NYSE:CVX) to acquire Anadarko Petroleum (NYSE:APC) is a similarly questionable use of capital. Though Raymond James analysts don’t believe Chevron is overpaying, they also don’t believe it was necessary. The use of that cash and stock now may prevent the oil giant from being able to step into a more advantageous opportunity later.

Kinder Morgan, meanwhile, is focusing its capital expenditures internally, which at least gives it the option to adjust spending plans as needed.

In the meantime, KMI stock just appears to have new life, as investors celebrate its position against a backdrop of still-improving gas and crude oil prices.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site,, or follow him on Twitter, at @jbrumley.

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