Kinder Morgan (NYSE:KMI) has been enjoying a nice bounce-back year. Shares of the energy company have rallied more than 30%, due in part to its solid quarterly results through the first half of the year. Because of that, the company remains on track to achieve its 2019 growth forecast despite the continued turbulence in the oil market.
The pipeline giant will provide investors with another snapshot of its 2019 performance later this week when it posts its third-quarter results. Here are three things investors should keep an eye on in that report to ensure it remains on track to continue creating value.
1. Were its quarterly results on target?
Kinder Morgan has generated $2.5 billion, or $1.10 per share, of distributable cash flow (DCF) through the first half of the year. That's halfway to meeting its budget of $5 billion, or $2.20 per share, of DCF this year, exactly where it expected to be at that point in the year.
Investors will get another data point this week when the company reports its third-quarter results. The company currently expects to generate $1.51 billion, or $0.51 per share, of DCF during that period, or about 23% of the annual total. Ideally, the company will hit that target. If it misses, investors should see what caused the issues. During the second quarter, for example, the company came in slightly below budget due to problems at its bulk terminal business, where volumes fell compared to the prior-year period. If the company misses again, its full-year results might come in below budget, which could cause its stock to give back some of this year's gains.
2. Did it add any more growth projects to the backlog?
Heading into this year, Kinder Morgan had $5.7 billion of expansion projects under construction. The company estimated that it could add another $2 billion to $3 billion of new projects this year, which would give it the fuel to keep growing. It was about halfway from hitting the low end of that range by the end of the second quarter after adding a net $1 billion of new projects in the first half of the year.
Kinder Morgan has already publicly added to that total. In August, it announced that it secured $170 million of new projects to expand its capabilities along the Houston Ship Channel. That puts it a bit closer to its goal for the year.
The company has several other projects in development, including oil pipeline expansions in the Rockies, another gas pipeline out of the Permian Basin, and a range of other smaller projects along the Gulf Coast. Given the importance of securing new expansions to drive future growth, investors should see if the company added more projects to the backlog during the third quarter. If not, then it could fall short of its goal, which could impact its ability to grow in the coming years.
3. What is its progress on exiting Canada?
Kinder Morgan surprised investors in August by announcing that it sealed a deal to sell its stake in its Canadian subsidiary Kinder Morgan Canada (TSX:KML). Canadian midstream company Pembina Pipeline (NYSE:PBA) is acquiring that entity in an all-stock deal. Kinder Morgan will receive about 25 million shares in Pembina, worth about $935 million. In addition to that, Pembina agreed to acquire the U.S. portion of Kinder Morgan's Cochin Pipeline for another $1.55 billion. Kinder Morgan intends to use the initial cash infusion to pay down debt. It plans to eventually sell the shares of Pembina it receives and use the funds to repurchase stock and invest in additional growth projects.
The companies expect the transactions to close either in the fourth quarter or early next year. Ideally, Kinder Morgan won't report any issues that could derail that timeline. That's because it's an important deal for the company. Not only will it strengthen its balance sheet, but it will also simplify its corporate structure and enhance its focus on its core U.S. midstream operations.
More clarity should come this week
Kinder Morgan's third-quarter report should provide investors with a bit more detail on the company's progress this year. They should have a better idea as to whether the company can deliver on its 2019 budget as well as if it can achieve its growth and balance sheet goals. If the quarter was successful on all fronts, then the stock could have more fuel to continue rallying.