WMB

Netflix’s “Moat” Eroding; Energy Transfer Equity’s Blunder Continues

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By Brian Nelson, CFA You won’t see us holding Netflix (NFLX) or Energy Transfer Equity (ETE) in the newsletter portfolios anytime soon, and recent news only supports that viewpoint. We talk about companies not included in the newsletter portfolios as part of their ongoing research and valuation coverage on our website. I must say that as a recent subscriber to Netflix, some of their movie suggestions sent via email haven’t been all that bad – their algorithm must have me figured out. As a logical thinker, and not one swayed by spontaneous gratification, it’s still hard to forget the shortcomings of their content library, in aggregate, however, “5 Reasons Why We Think Netflix’s Shares Will Collapse.” Even if we were to … Read more

Valuentum: Still Bullish on Kinder Morgan Since Mid-Teens

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“Valuentum called the collapse in Kinder Morgan’s shares from $40 per share to the low-teens, and now we have called the rebound to $20 from the low-teens. Though this action may not fit into the playbook of the “buy and hold” investor, the idea of “selling” overpriced stocks that are going down and “buying” overpriced stocks that are going up is a core part of our methodology.” By Brian Nelson, CFA I’m still getting emails about how wrong we were about our calls on Kinder Morgan (KMI). Will they ever stop? We’re doing our best to relieve investors of the shackles of “buy and hold” thinking, which is separate, distinct and runs counter to investing with a focus on long-term … Read more

Giddy Up – It’s Earnings Season!

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By Brian Nelson, CFA During the trading session January 27, Apple (AAPL) failed to turn the tide of a disappointing fiscal 2016 first-quarter report (calendar fourth-quarter), “Apple Will Go Lower…And It Will Be ‘Forced’ Into Acquisitions,” and coupled with a Fed statement, where the Committee left interest rates unchanged, as expected, many market observers read between the lines and hit the sell button. On the basis of some of the concerns we’ve outlined, “Not Doom and Gloom – But Just Cautious,” we can completely understand the hesitancy by participants to stay fully exposed to this tumultuous equity market. In many ways, that the Fed has hit the brakes just a few weeks after the long-anticipated rate hike means the global … Read more

Valuentum: Energy MLPs Continue Swoon

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Energy master limited partnerships (AMLP, AMZ) continue to be in a world of hurt as investors reevaluate the sustainability of distribution streams and reassess the fundamentals on a pure traditional free cash flow basis. Many, however, continue to point to uncertainty related to the completion of the deal between Energy Transfer Equity (ETE) and Williams Partners (WMB) as reason for the sharp drops, but if you recall, both stocks collapsed on the announcement of the deal in October, both stocks collapsed when speculation grew a deal would not be completed earlier this month, and both stocks collapsed when the deal was reiterated last week. Instead, we think the market is focused on tangible long-term fundamentals, free cash flow generation, leverage … Read more

Bye Bye Energy MLPs

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West Texas crude oil prices (USO) just broke through $32 per barrel to the downside for the first time since 2003. Share prices of those in the energy complex (XLE) continue to reel, and we maintain our view that the tremendous fallout in energy master limited partnerships (AMLP, AMZ) may not be over. From our perspective, the MLP business model may not survive in its present state, as equity markets continue to “wise up” to the artificial equity pricing paradigm that has centered on the group’s financially-engineered payouts. Without an artificial pricing paradigm to “prop up” their equity prices, for example, the incentive to perpetuate such a business model is substantially reduced. Distribution cuts would then inevitably ensue as a … Read more

Focus on ETE, Not ETP; Strive for Balance and Stick to the SEC Filings

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We continue to be grateful for the favorable reception of our research and analysis. Our mission to help investors of all types remains our core focus and a cause buttressed by our independence and analytical integrity. You can read more here about Valuentum and its President of Equity Research Brian Nelson, CFA. It appears there continues to be a significant amount of confusion about the securities associated with the Energy Transfer companies, a collection of assets that includes the corporate parent Energy Transfer Equity (ETE) as well its consolidated subsidiaries: “Energy Transfer Partners (ETP), ETP GP, ETP LLC, Regency, Regency GP, Regency LLC, Panhandle, Sunoco, Inc., Sunoco Logistics (SXL), Sunoco LP (SUN), Susser and ETP Holdco (per Energy Transfer Equity, L.P, … Read more

Alert: Energy Transfer Equity Is More than 7x Leveraged!

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Edited December 16, 2015 at 1:07pm following conversation with ETE executive team. The Securities and Exchange Commission performs a vital function when it comes to truth in reporting, helping investors sort through what’s true and what’s not. The Form 10-K (annual) and Form 10-Q (quarter) can be used to compare what a company’s reported, actual net leverage is to what management says it is – in their presentation slide deck or on some of the more popular business channels. Investors in midstream equities have long been “pitched” the idea that leverage is contained, but from our perspective, it is not. Bondholders deserve to know the actual, reported net leverage of companies in the midstream space because they won’t hear it … Read more

Not So Happy Holidays at Kinder Morgan

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In a sharp reversal from just a few days ago when Kinder Morgan (KMI) said it would generate sufficient “distributable cash flow” to fund dividend growth of 6%-10% in 2016, the executive team opted to cut its dividend December 8 by 75%, to $0.50 per share annually, a move that despite our best efforts has still managed to surprise the market, as evidenced by shares indicated down in after-hours trading. Though we plan to tweak our valuation model to account for the impact of recent acquisitive activity and the slide in energy resource pricing on Kinder Morgan’s intrinsic value, we’re reiterating the low end of our fair value estimate range at this time. We plan to update our 16-page valuation … Read more

Update: A 10%+ Cost of Capital for Midstream Equities Is Reality

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< This article was published on valuentum.com/ on October 27 and was subsequently modified yesterday. > Kinder Morgan (KMI) disclosed how it would raise much-needed financing October 26, and our worst fears were realized: The marginal cost of raising capital in the midstream space has soared. As recently as earlier this year, Kinder Morgan’s executive team had been guiding analysts to a 3.3% cost of capital (“hurdle rate”), (see page 28 here), a level we had outlined was absolutely ludicrous. The 3.3% mark broke down into a 4.1% yield on equity and a 2.4% cost of debt, evenly split. Here’s what we wrote in our June 30 piece, “Kinder Morgan’s Fair Value: $29 Per Share,” when Kinder Morgan’s shares were in … Read more

Correction: Understanding the MLP Valuation Conversation

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A correction was performed to the table in this article October 29, 2015, at 7:20pm. How to interpret the changes: In this illustrative example that includes both growth capital spending and a marginal cost of capital of 10%, holders of MLPs will have to wait years before the intrinsic value of the security catches up to the present market price (comparison shown in orange). Said differently, units in this example are significantly overpriced in today’s market.