Did Kinder Morgan Prove Hedgeye Wrong?


Kevin Kaiser, the twenty-something energy analyst at Hedgeye Risk Management, a Connecticut-based independent research provider, has been on Kinder Morgan’s case since early September when he tweeted that Kinder Morgan and its associated companies “is a house of cards, completely misunderstood and mispriced.”  Now that Kinder Morgan has reported earnings growth of 16% and distributable cash flow, or DCF, growth of 22%, has it silenced Kaiser’s alarm?  Not exactly.

Overall, Kinder Morgan’s results were mostly in line with its previous guidance.  One negative which Hedgeye highlighted: on a per unit basis, DCF declined from $1.28 to $1.27, despite growing 22% in aggregate.  However, Kinder Morgan had previously noted that DCF per unit would come in weaker for Q2 and Q3 2013.  As even Kaiser remarked: “Welp, all-in-all, rather uneventful earnings from Kinder companies.”

The highlight of the earnings call was when Kinder Morgan management called on Kaiser to ask questions.  Kaiser tweeted that he was so surprised “I almost spit out my coffee even though I wasn’t drinking any.”  As a result, his questions seem somewhat confused, at least as recorded on the transcript.  The bulk of his question time degenerated into a definition of free cash flow and distributable cash flow, with Kinder Morgan management educating him on the distinctions between them.

Although Kaiser did not cover himself with glory on the call, the stock price of KMI continues to languish.   KMI stock closed at $37.57 the day before Kaiser’s initial tweet, then fell to $35.30 the day of his tweet.  It recovered to $36.78 the day Kaiser’s full report on Kinder Morgan was released, but then fell back to $34.72 in the days following.  After the latest earnings call, the price is at $36.21 (as of this writing) but still is not back to where it was before Kaiser’s challenge.  So the jury is still out.

As we noted earlier, the more interesting story here is the growing power of social media.  Kaiser may or may not be vindicated in his Kinder Morgan call, but what is not in question is Twitter’s increasing role as a research distribution vehicle.




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