Seeking Alpha

More on Hedgeye's takedown of Kinder Morgan companies

  • Excerpts from the thrashing of the Kinder Morgan companies by Hedgeye's Kevin Kaiser as "a house of cards":
  • "Like a toll road - except for the E&P segment that generates +20% of KMP’s segment DCF."
  • "$78B of combined market cap sitting on top of $1.6B of tangible equity?"
  • "KMP’s investor presentation 'returns' vs. actual returns to the KMP unitholder."
  • "How 'Certain' are KMP’s 'Certain Items'"?
  • Kaiser says he'll release a full report Sept. 10.
  • KMI -4.3%, KMP -2.4%, KMR -3.1%, EPB -0.8%.
Comments (72)
  • rlp2451
    , contributor
    Comments (6594) | Send Message
     
    This excerpt raises more questions than it answers.
    4 Sep 2013, 12:26 PM Reply Like
  • crash9010
    , contributor
    Comments (146) | Send Message
     
    So...any Kinder Morgan statements on this attack?
    4 Sep 2013, 12:27 PM Reply Like
  • The Market Daily
    , contributor
    Comments (46) | Send Message
     
    That's it? That's what entails a 'House of Cards'?
    4 Sep 2013, 12:27 PM Reply Like
  • Micah
    , contributor
    Comments (481) | Send Message
     
    This is the same DB that took down $LINE too. This guy has done some serious damage to my portfolio this year.
    4 Sep 2013, 12:29 PM Reply Like
  • kata
    , contributor
    Comments (704) | Send Message
     
    And they have laughed all the way to the bank. Maybe Barrons will take a shot too. The whole e&p sector is at risk.
    4 Sep 2013, 11:21 PM Reply Like
  • Tom in Texas
    , contributor
    Comments (358) | Send Message
     
    KM is not E&P, they are pipelines.
    5 Sep 2013, 03:23 AM Reply Like
  • BAHAMAS1
    , contributor
    Comments (2619) | Send Message
     
    Simply a negative group of short sellers saying / implying anything to make a buck !
    The SEC should be notified of this groups possible ulterior motives.
    4 Sep 2013, 12:32 PM Reply Like
  • dalez
    , contributor
    Comments (2) | Send Message
     
    You have that right ! This is all but a game to the short sellers when they need to make money ! No wonder some think the market is rigged !
    4 Sep 2013, 12:40 PM Reply Like
  • Michael Nau
    , contributor
    Comments (972) | Send Message
     
    shorts talking their book shouldn't be illegal.
    4 Sep 2013, 08:13 PM Reply Like
  • richjoy403
    , contributor
    Comments (10662) | Send Message
     
    Ya, we know the longs would never talk their book.
    4 Sep 2013, 09:03 PM Reply Like
  • jonk
    , contributor
    Comments (140) | Send Message
     
    Yes it should if they make allegations and don't back them up until a week later -- and then you see that the report is nonsense. Someone should investigate if Kaiser was shorting. This is precisely the type of thing that gives Wall Street a reputation as a rigged game. That's my "allegation".
    10 Sep 2013, 11:08 AM Reply Like
  • MMoreda
    , contributor
    Comments (9) | Send Message
     
    Rehash from my comment on the other Kinder Morgan thread:

     

    "It's interesting that Hedgeye would come out with this strong sell recommendation, which calls for the "collapse" of Kinder Morgan due to the fact that it's structure is a "house of cards" that is "completely misunderstood and mispriced". I can see some people feeling a bit worried, especially given that Kinder is sort of an Enron spin-off.

     

    Combined KMI, KMP & KMR have a total market cap of over $70bn (this figure does not take into account the interest KMI holds in both KMP & KMR). I've followed this company for a while and am sure that, given its size, many other sophisticated investors have done so as well. This is not to say that there aren't scams out there which go unnoticed even by the "smart money". Sino-Forest comes to mind when I read this headline. It was a relatively large (~4.2bn mkt cap) company which cost John Paulson about $720mm in losses. Nonetheless, I'd be wary to take Hedgeye's word as fact until they provide a full report and sincerely find it unprofessional to come out with these allegations without providing the appropriate evidence to back them up.

     

    Finally, I wanted to note that Jefferies produced an extensive report on MLP's and initiated coverage on KMI/KMP/KMR, all with hold ratings. In their report they take an in depth look at the entire conglomerate and nothing of what they published suggests a "house of cards". They did note, however, that the companies do have a rather thin DSC. I'm not arguing who has a better read on Kinder; I'm just saying that although Hedgeye's allegations are worth taking a look at, one should probably wait for the complete details before establishing a longer-term view on the company."
    4 Sep 2013, 12:35 PM Reply Like
  • 21thomas99
    , contributor
    Comments (408) | Send Message
     
    No, KM is NOT an Enron spin-off. Please see my comment in another related thread.
    4 Sep 2013, 12:46 PM Reply Like
  • The Market Daily
    , contributor
    Comments (46) | Send Message
     
    Rich Kinder was the former President of Enron and that is it. If Rich was still there Enron would be too. Enron ultimately hired Skilling who really did the damage
    4 Sep 2013, 12:48 PM Reply Like
  • MMoreda
    , contributor
    Comments (9) | Send Message
     
    Yes you're most probably correct. I tried to use the phrase "sort of an Enron spin-off" to highlight that some people might associate the two. After all, Rich was the former president and KMP purchased large amounts of Enron's hard assets. I agree that both companies are not comparable.
    4 Sep 2013, 03:12 PM Reply Like
  • Guest1234
    , contributor
    Comments (82) | Send Message
     
    EOG is an enron spinoff btw
    5 Sep 2013, 12:06 AM Reply Like
  • metal27
    , contributor
    Comments (511) | Send Message
     
    As a student of the Enron mess (not a stockholder), I'd blame Andrew Fastow. Lay and Skilling played their roles, but Fastow was supposed to keep them from crossing the line. ITM, he had himself crossed that line without telling them long before, and profited handsomely.

     

    Fastow should still be in jail, not Skilling.
    9 Sep 2013, 01:26 PM Reply Like
  • phildevoyd
    , contributor
    Comments (145) | Send Message
     
    At some point there will be enough pipelines. At some point oil and production will decline and/or the products will be found where there are no pipelines. We are not there yet.
    At some point Congress may decide that they need to modify the tax status of MLP's to raise money. We are not there yet.
    This will happen, but not in the foreseeable future. If oil and gas stops flowing, the economy and our lives will be very different.
    4 Sep 2013, 12:35 PM Reply Like
  • 21thomas99
    , contributor
    Comments (408) | Send Message
     
    'At some point there will be enough pipelines. At some point oil and production will decline and/or the products will be found where there are no pipelines. We are not there yet.'

     

    And you are not going to be there with KM, as they NEVER build pipelines without sufficient prior commitments as to justify the build out.
    4 Sep 2013, 12:47 PM Reply Like
  • Cash King
    , contributor
    Comments (932) | Send Message
     
    I bought more today. Yummy. I love when lowlifes talk down a good company/stock with no facts to back it up. Then I can buy more and get a great yield. Num num.
    4 Sep 2013, 02:46 PM Reply Like
  • mydogmoe
    , contributor
    Comments (646) | Send Message
     
    Maybe LINE is a buy here. These guys wrecked the stock and insiders are piling in. I'm very close to pulling the trigger. Selling for slightly more than book. Even if they cut their dividend in half it's better than a 5% dividend....
    4 Sep 2013, 01:24 PM Reply Like
  • rlp2451
    , contributor
    Comments (6594) | Send Message
     
    Book value for MLPs is notoriously difficult to determine. Which set of data are you using?
    4 Sep 2013, 01:45 PM Reply Like
  • mydogmoe
    , contributor
    Comments (646) | Send Message
     
    Nothing scientific Rip. MSN Money is reporting a book value of 17.99. How they came to that conclusion is open for discussion.They are also reporting insiders have bought over 50,000 shares since June with no sales. No discussion necessary on that one.....
    4 Sep 2013, 02:13 PM Reply Like
  • rlp2451
    , contributor
    Comments (6594) | Send Message
     
    Linn says their BV is over $40. Who do you believe?
    4 Sep 2013, 02:35 PM Reply Like
  • BTinSF
    , contributor
    Comments (206) | Send Message
     
    May I suggest looking at another Hedgeye victim that I like better than Linn: Breitburn Energy Partners (BBEP). It's selling below what disinterested 3rd parties have called its book value around $18 and has a monster yield since the drop in price.
    4 Sep 2013, 04:59 PM Reply Like
  • Valuentum
    , contributor
    Comments (1366) | Send Message
     
    Doesn't Hedgeye understand that book value can be negative and a firm can still have tens of billions in market capitalization. When a firm pays out a distribution, its equity is reduced by the amount of the distribution. This is just how accounting works.

     

    Also, for example, please pull up Boeing's annual report (maybe from 2009)--you'll see that the aerospace giant had negative equity during most of the past last decade. Yet, its market cap is $80 billion.

     

    We haven't seen the Hedgeye report, but a small book value or even negative equity is nothing to be concerned about.
    4 Sep 2013, 01:49 PM Reply Like
  • Chancer
    , contributor
    Comments (3159) | Send Message
     
    Those who do not know the companies talk like Hedeye is altruistically helping investors with valid information. This is Hedgeye formula crap. They are talking their book to make money on shorting the shares. They did it to LNCO; now Kinder Morgan. Who will be next?

     

    Hedgeye does not care about valid information. They find just enough to slant the facts to raise questions so that investors will sell. I have owned KMR since 2005 and 2006- 8 years. It has only grown stronger and larger.

     

    I will not even read what Hedgeye says on any stock. I know their motives and that is all I need to know. I warned some investors this attack was coming. Maybe, followed up by Barron's articles. Kurt Wolfe, the old Kinder Morgan attack dog may join in. They might try to start an SEC investigation. But the government has looked at Kinder Morgan through many acquisitions. I think Richard Kinder may mount a strong defense.

     

    If price falls to the $68-$73 range, I will buy more KMR, as a great buying opportunity. My personal view is that KMR will be $100 within 5 years. If it takes 10 years, I plan to still be holding.
    4 Sep 2013, 02:45 PM Reply Like
  • Akaralph
    , contributor
    Comments (2032) | Send Message
     
    I personally don't see Richard Kinder ignoring this attack. Don't own KMP or KMR but will be watching for a buy point.
    4 Sep 2013, 02:08 PM Reply Like
  • mydogmoe
    , contributor
    Comments (646) | Send Message
     
    Good point. Elon Musk counter attacked a negative Barron's article and a G/Sachs downgrade and Tesla did nothing but advance 50%. I don't see any of the Kinder group moving like that but a rebuttal is a good idea...
    4 Sep 2013, 02:27 PM Reply Like
  • curreyr
    , contributor
    Comments (727) | Send Message
     
    I'm guessing he's busy with executing warrant buybacks today!
    After $50m or so of buyback, I expect a response.
    4 Sep 2013, 02:41 PM Reply Like
  • Dividend Math Guy
    , contributor
    Comments (408) | Send Message
     
    The tweet said "Full report out to clients on Tues 9/10. Email sales@hedgeye.com if interested"

     

    I'm sure Richard Kinder will rebut the report. That is, if he can get a copy of it.

     

    Actually, can he even publicly rebut the report, given that the information in the report is private and only for subscribers? Bah!
    4 Sep 2013, 10:31 PM Reply Like
  • richjoy403
    , contributor
    Comments (10662) | Send Message
     
    There are few things I am 100% certain of...but if Kinder wants that report, I am certain he already has it, or will have it tomorrow. In addition, and independently, his top 13 finance wizards will also be going over it very carefully.
    4 Sep 2013, 11:20 PM Reply Like
  • CoryJ
    , contributor
    Comments (8) | Send Message
     
    I thought this wasn't released yet... Or, is it released to their subscribers but not to the public?
    4 Sep 2013, 02:29 PM Reply Like
  • PhyllisAC
    , contributor
    Comment (1) | Send Message
     
    I will be retiring within the next 1-3 yrs. Do I sell now buy more or hang in there?
    4 Sep 2013, 02:29 PM Reply Like
  • Energysystems
    , contributor
    Comments (1311) | Send Message
     
    Buy more!
    4 Sep 2013, 02:53 PM Reply Like
  • WisPokerGuy
    , contributor
    Comments (977) | Send Message
     
    Be careful. I don't think you supplied enough information for anyone to answer that question reasonably. A lot depends upon what other equity assets you currently own and what your overall risk tolerance is. All I'm saying is that taking anyone's flip two word answer to such a general question can be dangerous to your financial health.

     

    That said, I've owned KMP for years and I bought more today. But never risk putting all your eggs in one basket even in a what might look like a tremendous buying opportunity. The downside risk becomes way too steep to justify.
    4 Sep 2013, 07:47 PM Reply Like
  • Clayton Rulli
    , contributor
    Comments (2896) | Send Message
     
    Tangible Equity is silly to use... the company needs years to generate revenues from pipelines as they have long term contracts for their pipes. Tangible equity is primarily used if a company is going through liquidation, which Kinder is not so why harp on this useless metric?
    4 Sep 2013, 02:38 PM Reply Like
  • Energysystems
    , contributor
    Comments (1311) | Send Message
     
    Shorts will grasp for any straws to make a buck. I doubled my KMI position today. Raised my cost average to 32.50 but that's a deal I'll do any day.
    4 Sep 2013, 02:54 PM Reply Like
  • sarichter
    , contributor
    Comments (438) | Send Message
     
    I did the same... but my cost average is slightly higher. Well worth it though! The US energy boom is upon us...
    4 Sep 2013, 10:14 PM Reply Like
  • toomuchgas
    , contributor
    Comments (686) | Send Message
     
    Guess those pipelines and the largest oil field in Texas don't really exist because a short seller in the stock says so. The boy who cried wolf once too often.
    4 Sep 2013, 02:58 PM Reply Like
  • I-investor
    , contributor
    Comments (13) | Send Message
     
    I have reviewed what the limited summary reported on this site.

     

    1) Hedgeye continues on their prior theme regarding Upstream MLP's purchasing aging oil fields to juice cash flow. However they state that KM obtains only 20% of revenue from upstream operations. They demonstrate prejudice when they characterize KM as an UPSTREAM MLP. It is obviously not.

     

    2) Hedgeye states that these upstream investments are in old fields and they ignore the shale plays which are developing. KM is deeply into both the Utica and Marcellus.

     

    3) One of the all-time worst calls was made by Hedgeye CEO Keith McCullough advised "Sell All U.S. Stocks NOW"....In May, 2010!

     

    So, perhaps I will buy more.....
    4 Sep 2013, 03:02 PM Reply Like
  • rlp2451
    , contributor
    Comments (6594) | Send Message
     
    They made a lot of money when they made the call in #3 and covered a short time later. Remember, these guys don't hold stocks very long.
    4 Sep 2013, 03:15 PM Reply Like
  • I-investor
    , contributor
    Comments (13) | Send Message
     
    Are you aware that they claim not to have brokerage accounts?

     

    The market indexes rose for the rest of 2010, beginning in late May.
    4 Sep 2013, 03:30 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (24130) | Send Message
     
    I think I figured out the logic Hedgeye's logic - and it seems sound to me.

     

    Pretty impressive actually. I might write an article on the insight.
    4 Sep 2013, 03:04 PM Reply Like
  • Energysystems
    , contributor
    Comments (1311) | Send Message
     
    My take? Leverage short interest through media and social networking. It's easier to down an elephant with a pride of lions.
    4 Sep 2013, 03:06 PM Reply Like
  • Art Rimbaud
    , contributor
    Comments (46) | Send Message
     
    Paulo - I've found a lot of well-thought out arguments in your articles so am very interested in your seeing some merit in this bear thesis. Look forward to reading your piece. Long KMI, so very curious about the contrarian position.
    4 Sep 2013, 04:52 PM Reply Like
  • Paulo Santos
    , contributor
    Comments (24130) | Send Message
     
    I don't have a bear thesis for KMI - I just think I know the logic Hedgeye applied.
    4 Sep 2013, 05:03 PM Reply Like
  • richjoy403
    , contributor
    Comments (10662) | Send Message
     
    Hedgeye is either mostly right, or mostly wrong. If right, congratulations to them.

     

    Nothing said here will make them either 'right' or 'wrong'. Like LINE/LNCO, endless articles and shouting at each other is likely, but also largely a waste of time.

     

    I'm long KMI--the market is kneejerk voting Hedgeye is 'right' today on 5 times normal KMI volume; I'm looking forward to how the market votes in another week or two--after their analysis is thoroughly vetted, and hopefully strongly refuted by Richard Kinder.
    4 Sep 2013, 03:17 PM Reply Like
  • KMR holder
    , contributor
    Comments (646) | Send Message
     
    Tripled my position in KMI today and will double it again if it drops another 10%. I believe I will generate great dividend yield on this stock. As KMI buys in shares and warrants, with the cash newly authorized, earnings per share should increase even more rapidly. Last week with the dollar a share price increase, somebody big may have been buying. As the dividend grows, and the price goes down, I can buy more shares for the dividend dollar. Way to go Hedgeye!
    4 Sep 2013, 03:59 PM Reply Like
  • Philip Trinder
    , contributor
    Comments (1048) | Send Message
     
    If anyone gets a chance to see the actual Hedgeye report / thesis at some point after it comes out on September 10, please let me know if they are looking at KMI on an Unconsolidated Non-GAAP Basis.

     

    I'll be impressed if they have fully modeled KMI correctly on a stand alone basis and are then valuing it based upon the assets KMI actually owns (underlying LP units, the various IDRs, plus the physical assets it still owns directly, etc.) and the actual debt on KMI's standalone balance sheet.

     

    Most analysis that I see of MLP General Partners is tragically flawed because people simply use the GAAP Fully Consolidated financial statements and do not do any actual work and analysis of what is in the GP entity on a stand alone basis.
    4 Sep 2013, 04:00 PM Reply Like
  • Dividends#1
    , contributor
    Comments (3122) | Send Message
     
    Hi Phillip,

     

    Hope you are well. I actually retired recently. Are you increasing your position in KMR?

     

    Any other thoughts on this analysts call?
    4 Sep 2013, 10:25 PM Reply Like
  • semibrief
    , contributor
    Comments (2) | Send Message
     
    I suggest you take a look at the briefs and expert witness testimony filed by ExxonMobil and BP after discovery in the cases at FERC involving SFPP and Calnev.
    5 Sep 2013, 09:44 AM Reply Like
  • Philip Trinder
    , contributor
    Comments (1048) | Send Message
     
    Hello Dividends#1,

     

    Assuming you planned to do it, congratulations on your retirement!

     

    I'm greedy so I would probably wait until KMR is trading at lower levels before adding.

     

    I don't really have any view on their Analyst's call since they haven't actually put out their report so I have no idea what their thesis is to come up with the attention grabbing tag line that Kinder Morgan is a "House of Cards."

     

    Cheers,
    Phil
    5 Sep 2013, 02:40 PM Reply Like
  • nuahw
    , contributor
    Comments (167) | Send Message
     
    Here we go again,,,tempest jn a teapot
    4 Sep 2013, 04:18 PM Reply Like
  • eternitus141
    , contributor
    Comments (310) | Send Message
     
    Interesting play - create a self-fulfilling short and give yourself plenty of time to close your positions before KMP goes ex-dividend. There is some opacity to the structure, but the dividends are supported by stable cash flow and should continue to be paid.
    4 Sep 2013, 04:24 PM Reply Like
  • eddieojr
    , contributor
    Comments (67) | Send Message
     
    What product or service does hegeye produce? Do they have any actual assets or produce or sell anything? Do they have any customers,if so how many? How is hegeye doing financially? What is their debt level? Maybe the house of cards is really hegeye? Just sayin!
    4 Sep 2013, 04:27 PM Reply Like
  • Rohrshack
    , contributor
    Comments (117) | Send Message
     
    I for one am not happy that I recently purchased additional KMP before this news came out. I wish I would have waited but who knew? On the other hand, I think that I will try to hold my fire, in the future, and wait for HedgeEye to recommend another short before pulling the trigger. That strategy seems to be a winner in today's market culture. If I had any ammunition left in my arsenal, I would probably buy KMP next week, when the whole report becomes public.
    4 Sep 2013, 04:29 PM Reply Like
  • georaw
    , contributor
    Comments (4) | Send Message
     
    Thanks, just bought more KMI on dip.
    4 Sep 2013, 04:29 PM Reply Like
  • nuahw
    , contributor
    Comments (167) | Send Message
     
    Wish they would attack Seadrill next...boy, what an opportunity
    4 Sep 2013, 04:33 PM Reply Like
  • curreyr
    , contributor
    Comments (727) | Send Message
     
    Oh, I hope you're right.
    4 Sep 2013, 04:35 PM Reply Like
  • BTinSF
    , contributor
    Comments (206) | Send Message
     
    There are any number of stocks I don't ALREADY own I wish they'd attack but Seadrill is one I do.

     

    It's a Norwegian company by the way. I wonder if the rules about shorting ADRs are the same. Not sure myself.
    4 Sep 2013, 05:04 PM Reply Like
  • curreyr
    , contributor
    Comments (727) | Send Message
     
    SDRL is Bermuda ... Fredriksen is Norwgian tho I believe?
    4 Sep 2013, 05:08 PM Reply Like
  • KMR holder
    , contributor
    Comments (646) | Send Message
     
    So, at what price does Richard Kinder do a leveraged buy out of KMI, and slit the short's throats?
    4 Sep 2013, 05:36 PM Reply Like
  • Jason Burack
    , contributor
    Comments (1824) | Send Message
     
    It must be nice to get big enough where anything you say dramatically moves the markets.
    4 Sep 2013, 06:52 PM Reply Like
  • raykrv6a
    , contributor
    Comments (3058) | Send Message
     
    That's what I was thinking too. Hedgeye speaks, everyone panics.
    4 Sep 2013, 10:03 PM Reply Like
  • ComputerBlue
    , contributor
    Comments (873) | Send Message
     
    Thank you Hedgeye..please bring down some others for me to buy.
    4 Sep 2013, 08:21 PM Reply Like
  • buyandhold???
    , contributor
    Comments (907) | Send Message
     
    Let's not forget richard kinder was one of the bigwigs at enron before it's collapse. I find it hard to invest in someone who worked so closely with skilling and lay.
    4 Sep 2013, 09:59 PM Reply Like
  • BAHAMAS1
    , contributor
    Comments (2619) | Send Message
     
    bh-
    I, and many,many others find it hard to believe any of Your comments as exhibited on other postings.
    4 Sep 2013, 10:03 PM Reply Like
  • semibrief
    , contributor
    Comments (2) | Send Message
     
    Finally, the investment community is waking up to the fraud being perpetrated upon it, the shippers on KM pipelines, and the government regulators that are supposed to prevent this type of abuse. It has long been challenged in pleadings filed at the FERC. Neither the FERC nor the SEC wants to hear it. They merely turn a blind eye. This house of cards will fall. The question is, when????
    4 Sep 2013, 11:32 PM Reply Like
  • hallereugene@gmail.com
    , contributor
    Comments (348) | Send Message
     
    Can you be a little more clear? Whose perpetrating the fraud KMs?
    5 Sep 2013, 09:25 AM Reply Like
  • KMR holder
    , contributor
    Comments (646) | Send Message
     
    I find it hard to take born again posters serious. semi with his 2 comments after birth seems curious.
    5 Sep 2013, 09:52 AM Reply Like
  • Arthur5
    , contributor
    Comments (2) | Send Message
     
    Semibrief, are you saying KMP charges too much to ship product? I think pipeline pass through rates are cheaper in this country than anywhere else in the world. Be semibrief and give me the gist of the Calnev discovery info. I've had KMP since thwe SFPP days ( 1990) and never seen anyone allege fraud at the rate process. I really am interested. I do see challeges ahead primarily related to interest rates and acquisition candidates but you have a left field issue.
    5 Sep 2013, 11:12 AM Reply Like
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