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This Is Why Kinder Morgan Inc.’s Stock Sank 11.5% in November

By Matthew DiLallo – Dec 3, 2015 at 9:45AM

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The energy infrastructure giant was under pressure from all sides.


What: November was a month Kinder Morgan (KMI 0.60%) investors will want to forget after the stock slumped double digits. A wave of negativity, when combined with some news regarding future oil sands pipelines, combined to send the stock sliding last month.

So what: Barron's led off the negativity wave by publishing an article on the Nov. 2 titled "Kinder Morgan Could Fall Another 20% or More." The article suggested that the company's stock should be valued by a more traditional financial metric such as net income or EBITDA, instead of being valued by its dividend yield. That's because that yield isn't entirely supported by cash flow due to the company's liberal use of debt and equity to fund growth.  

While that article spooked investors, it wasn't the only report put out last month pointing to Kinder Morgan's challenges. Argus slashed its price target for the company from $50 to $35 and while it maintained its buy rating, it expects Kinder Morgan's business environment to be much more challenging than originally expected.

Aside from that negativity, there were some news-driven catalysts starting with the fact that TransCanada's (TRP -0.12%) Keystone XL pipeline was rejected by President Obama. That outcome is of a dual concern for Kinder Morgan. First, it is trying to win approval for a competing oil sands pipeline, and the rejection of TransCanada's project could give its opposition more fuel to defeat Kinder Morgan's project. Further, because of the delays and new conditions already added to the project, Kinder Morgan now expects that, if built, the Trans Mountain expansion will cost at least $6.8 billion, which is well above the $5.4 billion it initially anticipated. That ballooning cost, which could grow if even more conditions are added, certainly questions the financial viability of the project and its ability to fuel dividend growth for investors.

Now what: There's a lot of negativity weighing on Kinder Morgan's stock price right now and that won't go away until the company proves its detractors wrong. That will only come in time, with the company needing to rack up a few big wins such as, for example, gaining the approval of a very safe but still quite lucrative Trans Mountain project. 

Matt DiLallo owns shares of Kinder Morgan and has the following options: short January 2018 $30 puts on Kinder Morgan and long January 2018 $30 calls on Kinder Morgan. The Motley Fool owns shares of and recommends Kinder Morgan. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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