Reuters Hedgeye Risk Management today released its written case against U.S. energy pipeline operator Kinder Morgan and its related entities.
All four of the tickers Hedgeye suggests shorting instead rallied between 1% and 2% today. While it’s a good day for Mr. Market, clearly investors don’t think the short case delivered enough punch.
In a nutshell: Hedgeye says investors should worry more about Kinder’s pipeline maintenance and spending therein. And it says Kinder’s exploration and production business, while small, is NOT a pipeline enterprise and valuation should reflect that. Moreover, Hedgeye says it thinks Kinder Morgan's strategy is to “starve its pipelines and related infrastructure of routine maintenance spending” so that it can maximize distributable cash flow and payments to the general partner, Kinder Morgan (KMI). As a structure, MLPs pay out most of their cash flow as tax-deferred distributions to investors in their “units,” as shares are called.
But KMI’s structure is more complex, and the general partner is collecting some hefty distributions from limited partners in the form of “incentive distribution rights.”
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