WMB

The Great Pipeline Cash Flow Deficiency

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A myopic view on the energy sector may lead one to ask the question whether the distributions of energy master limited partnership are safe. A broadminded view would answer that question in two words: absolutely not. Through the first six months of 2015, almost every energy-related MLP has spent more in total capital expenditures and distributions than they generated in cash flow from operations. Business models with financials such as these cannot be sustainable over the long haul without infinite access to capital via the debt or equity markets. We learned that housing prices don’t always go up (and that they can fall on a national scale) during the Financial Crisis, and we’ll eventually learn that debt-infused business models that … Read more

Williams’ Rejection, Medtronic’s Hike, eBay’s Sale, and Hershey’s Disappointment

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Williams Companies Rejects Offer from Energy Transfer Equity Natural gas pipeline company Williams Companies (WMB) has seen shares jump after Energy Transfer Equity (ETE) confirmed reports that it had made a bid to acquire the company. Despite the all-equity offer of $64 per share representing a 32% premium to Williams’ June 19 closing price, the offer was rejected by the firm as significantly too low. ETE has made multiple attempts to talk with Williams’ management about a possible merger in the past half year, and ETE has said its offer is contingent on the abortion of Williams’ pending purchase of Williams Partners (WPZ). The initial offer came on May 19, six days after Williams Companies announced it would buy Williams … Read more

5 More Reasons Why We Think Kinder Morgan’s Shares Will Collapse

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This article was originally published on valuentum.com/. “…the credit rating agencies have a lot to think about. Kinder Morgan’s investment-grade credit rating is in part supported by the firm’s ability to access the equity markets to sell its own stock. But its share price is artificially propped up by the incorrect application of dividend discount models that are using financially-engineered dividends, which themselves are in part supported by the debt raised from an investment-grade credit rating, which is then used to keep raising debt and growing the dividend…and so on.” 5 More Reasons Why We Think Kinder Morgan’s Shares Will Collapse It may feel like something’s different at our independent equity research firm, but nothing has changed in the past … Read more

5 Reasons Why We Think Kinder Morgan’s Shares Will Collapse

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The facts have changed at Kinder Morgan (KMI). We’re removing the company from the Dividend Growth portfolio right now! The entire position will be eliminated at $40 per share. What was once an optimistic view of the entity’s decision to de-risk by consolidating its disparate master-limited-partnership structure has now turned into fear that the firm’s equity may collapse. From its overpriced valuation to its restrictive debt load to its poor Dividend Cushion ratio that warns of tremendous risks to its dividend growth plans, Kinder Morgan may turn into one of the worst-performing companies this year and into 2016. We’re getting out…and in a hurry. Here are 5 reasons why we think Kinder Morgan’s shares will collapse. 1) The Valuation Paradigm Has … Read more

$45 Oil Prices!?!? There Is Never a Sense of Urgency When One Is Prepared

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Image Source: Macrotrends The bull market in energy (XLE) has lasted for the better part of a decade. Ever since the turn of the new century, energy perma-bulls have made the case that “black gold” (USO) should continue its ever-upward price advance thanks to ongoing demand from emerging and developing economies coupled with reduced inventories and areas of supply. We’re seeing this thesis challenged right at this moment. In deciding not to cut crude oil output in the face of oversupply and falling prices, the Organization of the Petroleum Exporting Countries (OPEC), for the lack of a better phrase, is now essentially engaged in a price war with producers in the US that are using breakthrough technology to produce oil … Read more

The Correction: Draghi; Chip, Telecom Warnings; Oil and MLPs

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The equity markets have been under significant pressure the past few weeks, and we think there is further downside to come. Our view is that the equity markets will be lower than today’s levels within the next 6-18 months, if not tomorrow or next week or next month. We’ve taken profits on cyclicals, and we’ve already closed out the put option hedges in both portfolios for a substantial gain (the latest transaction alert email can be accessed here). Europe appears to be in a giant mess again. The region hadn’t been strong by any stretch of the imagination, but we recently picked up material weakness during Ford’s (F) recent analyst day, which in part prompted us to take a very … Read more

Energy Transfer Partners’ Solid Distribution Coverage Ratio

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By Brian Nelson, CFA We understand that to many dividend growth investors the dividend/distribution isn’t everything–it is the only thing. That’s why we spend a considerable amount of time assessing the health and growth potential of dividends/distributions. To us, a master limited partnership’s (MLP) distribution is inherently risky. One of my former colleagues at Morningstar, Jason Stevens, emphasized in an April 2013 research piece on the group what Valuentum has been telling investors for a while: Another implication of MLP distribution policies that is important to understand is the impact of high distribution payouts on MLPs’ capital spending. Unlike corporations, which can use retained earnings and excess cash for growth purposes, MLPs retain very little of the cash generated each … Read more

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

EXCLUSIVE ALERT: Addressing Kinder Morgan Energy Partners and the MLPs in General

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There’s one thing for sure about Valuentum: as a member, you get the truth, the whole truth, and nothing but the truth. That’s why our members love us! We’re completely independent and completely tied to your best financial interests. You know we’ve never been shy about outlining the risks related to MLPs – for one, you don’t have to look far to see this warning (source) on the front page of every one of their 16-page reports (at the bottom): Firms in the oil and gas pipeline industry own or operate thousands of miles of pipelines and terminals—assets that are nearly impossible/uneconomical to replicate. Most companies act as a toll road and receive a fee for transporting natural gas, crude … Read more