Why Slimmed-Down Inergy Has Soared

On Tuesday, Inergy (NRGY +0.00%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Until recently, Inergy did a lot of business selling propane to residential and commercial users. But the company decided to recast itself to take advantage of higher-growth opportunities in the energy industry. Let's take an early look at what's been happening with Inergy over the past quarter and what we're likely to see in its quarterly report.

Stats on Inergy

Source: Yahoo! Finance.

Will Inergy's big move pay off in earnings?
In recent months, analysts have become much less optimistic about Inergy's near-term earnings prospects, cutting their projections for the March quarter in half and slashing $0.12 per share off their full-year fiscal 2013 estimates. But longer-term, they think Inergy's earnings will improve in fiscal 2014, and those hopes have helped push the stock up 12% since late January to new 52-week highs.

The reason why Inergy's numbers have changed so much since last year is that the master limited partnership went through a massive reorganization. About a year ago, Inergy agreed to sell its retail propane business to Suburban Propane (SPH 1.03%) for $1.8 billion, with much of the payment coming in the form of Suburban debt and partnership units. As a result, Inergy investors received a distribution of 10.8 Suburban units in September for every 100 Inergy units they owned.

That left Inergy's primary asset being its roughly 66% interest in Inergy Midstream (NYSE: NRGM), with its natural-gas pipelines and storage facilities in New York and Pennsylvania. With its proximity to the Marcellus shale area, Inergy Midstream's assets are definitely valuable, although the company recently suffered a setback when it and other developers in a proposed eastern-Pennsylvania pipeline decided to suspend the project.

In Inergy's quarterly report, watch for signs of whether the company intends to do anything other than act as a general partner for Inergy Midstream. Already, investors have seen distribution yields on Inergy units fall, and unless Inergy diversifies its business, it'll have to rely on the recent rise in natural-gas prices continuing in order to bolster Inergy Midstream's prospects.

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