Adobe Systems Inc. (NASDAQ: ADBE) Maintained Neutral but cut estimates at Credit Suisse.
Emerson Electric Co. (NYSE: EMR) Reiterated Buy with $70 target at BofA/ML.
Ener1, Inc. (NASDAQ: HEV) Reiterated Buy and $5 target at BofA/ML.
Finisar Corporation (NASDAQ: FNSR) Maintained Outperform and $29 target at Credit Suisse.
Genomic Health Inc. (NASDAQ: GHDX) Cut to Neutral at Piper Jaffray.
Kinder Morgan, Inc. (NYSE: KMI) Started as Neutral with $32 target at BofA/ML; Started as Neutral with $32 target at Credit Suisse.
Kinder Morgan Energy Partners LP (NYSE: KMP) Resumed as Buy at BofA/ML.
Kinder Morgan Management LLC (NYSE: KMR) Resumed as Buy at BofA/ML.
Micron Technology Inc. (NASDAQ: MU) Maintained Outperform but cut estimates at Credit Suisse.
Owens Corning Inc. (NYSE: OC) Raised to Buy at BofA/ML.
School Specialty, Inc. (NASDAQ: SCHS) Maintained Outperform as Bull of the Day at Zacks.
Starbucks Corporation (NASDAQ: SBUX) Reiterated Buy and Raised target to $42 at Argus.
Stillwater Mining Company (NYSE: SWC)
Textron Inc. (NYSE: TXT) Raised to Overweight at JPMorgan.
Tower Group, Inc. (NASDAQ: TWGP) Cut to Underperform as Bear of the Day at Zacks.

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JON C. OGG

As had been noted before the offering, all shares in the IPO are being sold by the existing investors.  The selling shareholders include affiliates of Goldman Sachs Group, Inc. (NYSE: GS), Highstar Capital LP, The Carlyle Group, and Riverstone Holdings LLC.  The good news is that none of the shares being sold are coming from Kinder Management, and that includes CEO Richard Kinder.

We are still considering the halo-effect for shares of Kinder Morgan Energy Partners LP (NYSE: KMP) and Kinder Morgan Management LLC (NYSE: KMR).  Kinder Morgan Energy Partners LP (NYSE: KMP) has not seen any gains this week as the oil market has not been a bullish one. Its units closed at $71.67 on Thursday and the 52-week trading range is $57.40 to $73.08.  Kinder Morgan Management LLC (NYSE: KMR) is closer to its week highs and at $64.83 its 52-week trading range is $50.67 to $67.56.  These two existing Kinder Morgan entities account for more than 14% of the weighting in the JPMorgan Alerian MLP Index Exchange Traded Notes (NYSE: AMJ).  Fiduciary/Claymore MLP Opportunity Fund (NYSE: FMO) has a 7.9% weighting and Kayne Anderson MLP Investment Company (NYSE: KYN) has a 6.6% weighting in the Kinder Morgan Management LLC (NYSE: KMR).  Kinder Morgan Energy Partners LP (NYSE: KMP) has roughly a 9.35% weighting in the ALPS Alerian MLP ETF (NYSE: AMLP).

Goldman Sachs and Barclays Capital are the joint book-running managers.  The deal’s co-managers are BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, J.P. Morgan, Wells Fargo, Madison Williams, Morgan Keegan, Raymond James, RBC Capital Markets, and Simmons & Company International.  The selling stockholders will grant the underwriters a 30-day option to purchase up to 14,319,990 additional shares of common stock to cover overallotments.

The most recent terms before the pricing had been for an IPO of 80 million shares with a price range of $26.00 to $29.00.  Just yesterday, our information from the night before had led us to believe that the IPO was likely to be closer to 90 million shares from the selling holders at the top of the trading range.  This premium pricing was that and then some at more than 95 million shares at a price of $30.00 per share.  Here is the funny thing about this IPO.  Despite our own digging for a higher price, there is still a feeling that some money was left on the table.  Management could have sold shares if it chose, particularly with such strong investor demand.

UPDATE at 3:40 PM EST: Shares were up at $31.17 on more than 47.5 million shares; the day’s trading range was $30.83 to $32.84.

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JON C. OGG

End note…. If you want to know why the Kinder Morgan interest is so strong and why the demand for anything tied to Richard Kinder is so strong, here is a chart as of last week that shows the long-term performance of Kinder Morgan Energy Partners LP (NYSE: KMP) and Kinder Morgan Management LLC (NYSE: KMR).  The chart should speak for itself:

This has been one of our Top 17 IPOs to Watch in 2011 and there may be a halo-effect for shares of “the other Kinder Morgans’ via Kinder Morgan Energy Partners LP (NYSE: KMP) and Kinder Morgan Management LLC (NYSE: KMR).  Selling shareholders include entities under or affiliated with Goldman Sachs Group Inc. (NYSE: GS), Highstar Capital LP, The Carlyle Group and Riverstone Holdings LLC.  The common stock offered will represent an approximately 11.3% interest in the newly named Kinder Morgan, Inc., or approximately 13.0% if the underwriters exercise their over-allotment option.

Richard Kinder’s success speaks for itself with exponential gains.  While investors should be concerned on the surface that all of the common stock being sold will be sold by existing investors, no members of Kinder Morgan management are selling in the offering.

Goldman Sachs and Barclays Capital were selected as the final joint book-running managers; co-managers are listed as BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, J.P. Morgan, Wells Fargo, Madison Williams, Morgan Keegan, Raymond James, RBC Capital Markets, and Simmons & Company International.  The selling stockholders will grant the underwriters a 30-day option to purchase up to 12,000,000 additional shares of common stock.

Watch for this IPO tomorrow.  There is one thing to consider here that is a sad reality of such a large offering.  Some of the other unrelated MLPs are up massively from lows and some of these could see selling as money comes off the table for the Kinder IPO.

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JON C. OGG

The coming week’s must see events for traders and investors alike in stocks is as follows: AnnTaylor Stores Corp. (NYSE: ANN), Audiovox Corporation (NASDAQ: VOXX), The Beckman Coulter Inc. (NYSE: BEC), Bristol-Myers Squibb Company (NYSE: BMY), Suncor Energy Inc. (NYSE: SU), Canadian Natural Resources Limited (NYSE: CNQ), DineEquity, Inc. (NYSE: DIN), Goldman Sachs Group Inc. (NYSE: GS), Market Vectors Egypt Index ETF (NYSE: EGPT), Internet Capital Group Inc. (NASDAQ: ICGE), OpenText Corporation (NASDAQ: OTEX), JDS Uniphase Corporation (NASDAQ: JDSU), Kinder Morgan Energy Partners LP (NYSE: KMP), Kinder Morgan Management LLC (NYSE: KMR), KV Pharmaceutical Co. (NYSE: KV-A), Lululemon Athletica Inc. (NASDAQ: LULU), Micron Technology, Inc. (NASDAQ: MU), NASDAQ OMX Group Inc. (NASDAQ: NDAQ), Orexigen Therapeutics, Inc. (NASDAQ: OREX), Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR), and finally SIRIUS XM Radio Inc. (NASDAQ: SIRI).

We have outlined the issue underway or the event upcoming, offered color on each, and added in trading data on the shares if applicable.  Again, these are the non earnings events. A detailed earnings calendar with previews is available here.

AnnTaylor Stores Corp. (NYSE: ANN) was up 3.2% at $23.75 on Friday on 150% of normal volume with some 3.75 million shares traded.  What is interesting is that its options volume was off the chart and it was all one-sided call options trading.  It is possible that these were hedged calls, but the volume looked extreme for a sector that is inundated with consolidation.

Audiovox Corporation (NASDAQ: VOXX) turned in an impressive gain in the after-hours session after news that it will acquire Klipsch Group Inc. for $166 million.  Klipsch is a high-performance audio solutions company serving the residential, professional and personal listening markets.  Trading volume in Audiovox was 11,430 shares but the after-hours trading showed a gain of 7.8% to $8.30 versus a 52-week range of $6.17 to $9.74.  Here is where this gets interesting: Audiovox had a market cap at the close of trading of only $177 million.

The Beckman Coulter Inc. (NYSE: BEC) buyout process is nearing an end and we could have more details over its merger this coming week.  We argued before that the premium price should have been close to full value already.  Speculators will run shares higher and everyone hopes that private equity firms will over-pay.

Bristol-Myers Squibb Company (NYSE: BMY) has an FDA panlel review on FEB. 9 where BMS is seeking initial approval for ipilimumab (Imclone’s Erbitux) for patients who have previously received treatment for melanoma. Recent data showed that survival rates were indeed higher and this could be another blockbuster opportunity for the firm if ultimately approved.  We have a formal approval decision date tentatively set for March 26.  The market cap is roughly $44 billion here.

Canada and oil sands for safe defensive oil… Barron’s highlighted Suncor Energy Inc. (NYSE: SU) and Canadian Natural Resources Limited (NYSE: CNQ) and others this weekend.  These are being touted as larger Canadian oil sands project companies that offer safer oil without political tensions and growth ahead.

DineEquity, Inc. (NYSE: DIN) could have Goldman Sachs Group Inc. (NYSE: GS) as a partner.  Reports late Friday showed that Goldman’s private equity arm is close to buying Applebees’ largest franchise holder.  Who would have known that mediocre chain food restaurants would have such an appeal to billionaires.

Kinder Morgan Holdco LLC will offer 80,000,000 shares of common stock under its existing registration statement with the SEC.  The expected price was put at $26 to $29 per share.  This should end up being the largest private equity-backed IPO so far.  We are currently looking for the IPO to come late next week.  While investors should be concerned on the surface that all of the common stock being sold will be sold by existing investors, Kinder Morgan’s other entities vouch for the offering here.  The good news is that no members of Kinder Morgan management are selling in the offering, including Richard Kinder.

Selling shareholders include entities under or affiliated with Goldman Sachs Group Inc. (NYSE: GS), Highstar Capital LP, The Carlyle Group and Riverstone Holdings LLC.  The common stock offered will represent an approximately 11.3% interest in the newly named Kinder Morgan, Inc., or approximately 13.0% if the underwriters exercise their over-allotment option.

Goldman Sachs and Barclays Capital were selected as the final joint book-running managers; co-managers are listed as BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, J.P. Morgan, Wells Fargo, Madison Williams, Morgan Keegan, Raymond James, RBC Capital Markets, and Simmons & Company International.  The selling stockholders will grant the underwriters a 30-day option to purchase up to 12,000,000 additional shares of common stock.

Kinder Morgan Energy Partners LP (NYSE: KMP) and Kinder Morgan Management LLC (NYSE: KMR) charts (from BigCharts.com) are below:

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JON C. OGG

Private equity tried to unload stakes in 2010 with mixed results.  Now that the capital gains tax and dividend tax rates have been extended for another two years,  there is a 24 month period with some breathing room.  We are also seeing many great venture capital-backed deals coming to market.

Below are the IPOs to watch:

1. AMC Entertainment Inc.

AMC operates 382 theaters with a total of 5,342 screens of July 1, 2010.  It generates roughly $2.7 billion in revenues and earned about $71 million in the last fiscal year.  Owners include J.P. Morgan Partners, Apollo, Bain Capital and The Carlyle Group. AMC  claims a pro forma average U.S. ticket price of $8.39 for fiscal 2010 versus $7.64 for the industry during the 12-month period ending March 31, 2010.  Its exposure to 3D and IMAX formats has also helped it maintain market share.  Its two top public competitors are Cinemark Holdings Inc. (NYSE: CNK), worth $2 billion, and Regal Entertainment Group (NYSE: RGC), worth $1.87 billion.

2. Carbonite

Carbonite, the online storage backup for consumers and businesses, has raised roughly $67 million in various venture rounds, while its sales have doubled each year since its launch in 2006.  The company claims to have backed up some 80 billion files, with more than 150 million new files backed up daily. It also claims to have restored more than 7.2 billion files that would have been otherwise lost forever.  Inc. Magazine placed it as #9 on its Inc. 500 list for 2010 of the 500 fastest growing private companies.  With “the cloud” remaining a hot topic and with its annual basic plan starting at less than $55.00 a year, Carbonite should have a solid reception when it comes to market.

3. Chrysler

Chrysler is the well-known distant number three of The Big Three.  The company was bailed by U.S  taxpayers, emerging from bankruptcy in mid-2010 under the operating control of Italian car maker Fiat.  After a solid General Motors (NYSE: GM) IPO and after a solid profitable turnaround at Ford Motor Co. (NYSE: F), an IPO filing in the coming months seems highly likely.  Even if the company wanted to stay under the Uncle Sam’s bailout umbrella for another year, the government seems to have been more keen on rapidly selling off its stakes in bailed-out companies. Fiat owns close to 25% and can increase its ownership to about 35% after certain performance hurdles. If it pays back the U.S. government for the bailout it can take as much as a 51% stake.  It projects $1.6 billion to $2.4 billion in operating profits with total sales of about 1.6 million units in 2011.

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4. Facebook

Facebook has taken over the world as the social networking giant since its launch in 2004.  CEO and founder Mark Zuckerberg is now a billionaire on paper and recent funding of $500 million from Goldman Sachs Group Inc. (NYSE: GS) put the valuation at a staggering $50 billion.  Suddenly, the Microsoft Corporation (NASDAQ: MSFT) investment of $240 million for a 1.6% stake and about $15 billion valuation seems like a steal.  Zuckerberg has said an IPO will be inevitable, but the time frame is ‘later,’ and he has tried to keep the act up that Facebook will not file for an IPO this year.  The SEC is inquiring about its sales of shares for insiders and over its finances due to the number of holders; the SEC requires companies with 500 or more shareholders to make financial filings almost the same as if they were a public company.   In the end, whether Zuckerberg wants to have it public or not, you could argue that Facebook is already partly public.

5. Frac Tec Services Inc.

Frac Tec Services Inc. has already filed its paperwork with the SEC for its IPO, and it has even selected a rather large consortium of investment banks, including Credit Suisse, BofA/Merrill Lynch, Citigroup, Morgan Stanley, and RBC Capital to lead its public sale.  Frac Tech may not be a well-known name but it owns 22 hydraulic fracturing units and the equipment used for services on wells with hard to recover resources.  The company has grown rapidly since launch of operations in 2006.  Sales for the nine-month period ending September 30, 2010 already were more than $800 million.  Petrohawk, XTO and Exxon Mobil are among its customers.  A unit of Chesapeake Energy (NYSE: CHK) owns about a 25% stake.

6. GNC Nutrition Centers

GNC Nutrition Centers may be public again.  This would not be its first time as a public company, and the sale is coming from Ontario Teachers’ Pension Plan after being acquired from Apollo Management.  GNC Holdings Worldwide owns and franchises 7,100  stores that sell vitamins, minerals, and other health products..  The 2010 IPO filing was for up to $350 million in stock, and it listed Goldman Sachs and J.P.Morgan as its lead underwriters.  Why might it not come public despite more than $1.7 billion in sales with operating income of $181 million?  Rumors have been out as recently as December that yet another private buyer may acquire it.

If this all sounds familiar, it should.  Kinder Morgan was taken private back in 2006 in a management-led buyout with Chairman & CEO Richard Kinder, and investors Goldman Sachs, Highstar, Carlyle, and Riverstone.  Before (and after) the effects of the offering, Richard Kinder owns 30.6% of the interest.  There are currently two public Kinder Morgan entities.  Kinder Morgan Energy Partners LP (NYSE: KMP) is down 0.6% at $69.92 and Kinder Morgan Management LLC (NYSE: KMR) is down 0.8% at $63.43.

Goldman, Sachs & Co. and Barclays Capital are acting as joint book-running managers for the proposed offering.  No deal terms have been formally stated and that $1.5 billion is for filing purposes and could easily be changed  between now and the formal IPO date.

The company notes:   We own the general partner and approximately 11.0% of the limited partner interests of Kinder Morgan Energy Partners, L.P., referred to in this prospectus as the “Partnership” or “KMP.” The Partnership is a publicly traded pipeline limited partnership whose limited partner units are traded on the New York Stock Exchange under the ticker symbol “KMP.” Additionally, the shares of our subsidiary that manages the Partnership, Kinder Morgan Management, LLC, referred to in this prospectus as “Kinder Morgan Management” or “KMR,” are traded on the New York Stock Exchange under the ticker symbol “KMR.”

Here is perhaps the single biggest issue to consider for new buyers… Kinder Morgan itself will not receive any proceeds from the offering.  Included in those existing shareholders are affiliates of Goldman Sachs, Highstar Capital LP, The Carlyle Group, and Riverstone Holdings LLC.

Kinder Morgan Holdco LLC is planning to convert from an LLC to a Delaware corporation, and the entity will be renamed Kinder Morgan, Inc.  The partnership and interests show the following:

• the general partner interest, which entitles it to receive incentive distributions;
• 21.7 million of the 222.4 million outstanding KMP units, representing a 6.9% limited partner interest;
• 12.9 million of the Partnership’s 90.3 million outstanding i-units, representing a 4.1% limited partner interest, through its ownership of 12.9 million KMR shares (i-units are a class of the partnership’s limited partner interests that receive distributions in the form of additional i-units instead of cash;
• it also owns a 20% equity interest in NGPL PipeCo LLC, the owner of Natural Gas Pipeline Company of America and certain affiliates, collectively referred to in this prospectus as “NGPL.” NGPL is a major interstate natural gas pipeline and storage system that it operates.

In 2009 and 2010, it distributed an aggregate of $650 million and $700 million, respectively, to its current investors.   KMP’s partnership agreement requires KMP to distribute all available cash after the end of each calendar quarter.  Business operations are numerous in the initial prospectus filing with the SEC.  Some are as follows:

Morningstar’s Paul Larson gave several sector picks today in the MLP sector, most of which are true MLPs.  Larson outlined Energy Transfer Equity, L.P. (NYSE: ETE).  It owns the general partner of two other MLPs, Energy Transfer Partners (NYSE: ETP) and Regency Energy Partners (NASDAQ: RGNC) in natural gas transportation businesses and ETP also owns a propane distribution business.

Enterprise GP Holdings L.P. (NYSE: EPE) was also given a positive outlook from Larson, and this is involved in a stock merger with Enterprise Products Partners L.P. (NYSE: EPD) that is still a deal pending unitholder approval.

Larson also likes TransCanada Corp. (NYSE: TRP), although this is a pipeline company in Canada that is not structured as a MLP and its dividend yield of 4.1% is more straightforward without many of the traditional tax headaches associated with an MLP.  Larson called it undervalued with a fair value estimate of $43.00 versus $37+ today.  Another of his alternative picks is Kinder Morgan Management LLC (NYSE: KMR) as being basically a different share class of one of the largest MLPs, Kinder Morgan Energy Partners.  Full Larson/Morningstar presentation

There are a couple of other means of investing in MLPs in a diversified manner that other pickers rarely make note of.  Kayne Anderson MLP Investment Company (NYSE: KYN) and JPMorgan Alerian MLP Index ETN (NYSE: AMJ) offer diversification with a return of capital component that still replicates income for investors.

Kayne Anderson MLP Investment Company (NYSE: KYN) is a closed-end equity mutual fund launched and managed by KA Fund Advisors, LLC that invests in the public MLP sector.  Its dividend can fluctuate and a recently announced payout of $0.48 per share for the last quarter is anticipated that a significant portion of the distribution will be treated as a return of capital for tax purposes.  That $0.48 rate has been paid for seven quarters (down from $0.50 before) and it has sold more shares and the current implied yield (again, not exact because return of capital) and its $26.10 share price compares to a 52-week trading range of $20.03 to $27.54.

JPMorgan Alerian MLP Index ETN (NYSE: AMJ) is an exchange-traded note that has a spotty dividend history since its 2009 launch.  If you smooth out the dividend it would have an implied yield of close to 5.2%.  At $33.95, the 52-week trading range is $24.26 to $34.15.

Before you chase these yields just as routine dividends, you will need to learn the tax structure, as well as the limitations and implications in investing in this asset class.

JON C. OGG

Will crude prices make a comeback in 2009, dragging along with them thehammered share prices? And which part of the energy sector will do thebest: E&P; refining; services; natural gas; pipelines? 

Here are how the bell weather companies in each area have fared over the last 52 weeks:

                                                             Percent below high
                                      52-week Range   (on 12/9/08)
Exxon Mobil (NYSE:XOM)    $56.51-96.12        17.7%
Valero (NYSE:VLO)              13.94-71.25         74.3%
Schlumberger (NYSE:SLB)    111.95-37.24       65.8%
Chesapeake (NYSE:CHK)      9.84-74.00          81.0%
Kinder Morgan(NYSE:KMP)   35.59-60.89         21.4%

The picture isn’t any prettier when you look at revenue estimates for 2008 and 2009:

                                 Full year 2008 (est)    Full year 2009 (est)
Exxon Mobil                   $485.33 billion          $382.06 billion
Valero                              121.92 billion            96.47 billion
Schlumberger                    27.59 billion             28.99 billion
Chesapeake                      11.02 billion             10.82 billion
Kinder Morgan                   12.84 billion             14.52 billion

What about earnings? Here are current estimates:

                           EPS thru Dec 08   EPS thru Dec 09
Exxon Mobil                    $8.66            $6.62
Valero                               4.38              3.51
Schlumberger                    4.71              4.67
Chesapeake                      3.63              3.10
Kinder Morgan                   2.37              2.40

Finally, here are trailing and forward dividend yields on a static basis:

                    Trailing Annual        Forward Annual
                     Dividend Yield         Dividend Yield
Exxon Mobil       1.10%                     2.10%
Valero                3.10                        3.50
Schlumberger     2.00                        2.10
Chesapeake       2.00                        2.70
Kinder Morgan    8.30                        8.90

We also wanted to look at which factors might be the most important foreach stock.  The obvious angle is which way oil prices go from here andhow high or how low they go.  For prices to go much lower under thecurrent 2008 levels of the low to mid-$40′s per barrel would mean thatthere has been further demand destruction and even much more globalweakness than is expected.  It turns out that oil companies aren’texactly as recession proof as once thought.  If T. Boone Pickens wasright on his prediction of a return to $100.00 oil, then 2009 is going to be another wildyear for energy stocks.

Exxon is expected to suffer from lower crude prices, plain and simple.High crude prices have been the driver of the company’s revenuesearnings for the past couple of years, and now that prices have fallen,revenues will also erode.  The question is what it will be able togenerate in profits and in margins.  The company has a history oflooking differently on a net basis than expected, so maybe more stabilityin oil prices may make this easier.

Although Valero’s dividend promise looks good, its EPS and revenues areexpected to fall next year. Refiners in general benefit from lowercrude oil prices, and the forecast on Exxon’s revenue and EPS indicatesthat no substantial price increases are in the offing. Valero’sdividend yield may be wishful thinking, although even the lowestanalyst estimate on earnings for 2009 gives this one a dirt cheapmultiple ahead.

Oil field services companies such as Schlumberger will follow theE&P companies and it already outlined some of the issues that willaffect its weaker earnings power. If capital expenditure budgetscontinue to be pulled in, services companies face reduced revenues andearnings. Schlumberger would not be immune  regardless of itsglobal dominance. There’s usually a bit of a lag due to the long timeframes, so the first half of 2009 should be better than the second half.

Finally, when a company is suffering from severe financial headaches,like Chesapeake is, not much good is expected. Chesapeake is sellingassets in an effort to raise cash, but this will hurt thecompany’s cash flow, which will lead it to try to sell moreassets, etc. Keeping dividends high will not fool anyone.  The recentcap-ex cuts were well received, so if the company can mind its P’s andQ’s and if natural gas prices stabilize it could offer a great return.Maybe even CEO Aubrey McClendon can start buying back some of his hugestock holdings that he was margin-called out of. 

For 2009, the company’s own numbers say that Kinder Morgan is the placeto be. But that 8.9% dividend yield hides a couple of gotchas. First,because of the structure of master limited partnerships this is pre-taxincome and an investor will be taxed on dividends at the investorsordinary income tax rate. Second, investors need to pay tax in everycountry and state in which Kinder Morgan operates.

A different way to invest in Kinder Morgan is through its managementarm, Kinder Morgan Management (NYSE:KMR). KMR investors participatedirectly in Kinder Morgan earnings by getting distributions in the formof additional units. Earnings are taxed at the capital gains rate andtax filing is much simpler. The forward dividend yield for KMR in 2009is 10.5%, up from 4.8% this year. Even if KMR yields only half theprojection, it’s still better than any of the other sector numberswe’ve looked at here.

All in all, the global economy and the new Democratic administrationand Congress will play a huge role in the overall success of the energysector next year. Unless credit and housing problems and unemploymentcan be solved, the economy will continue its downward slide and therewill be lower demand for energy. That will depress commodity prices,which will hurt services companies, but help refiners a little.Pipeline companies will see lower volumes, but many have a large supplyof cash that will see them through.  If the recession gets worse, orcontinues into 2010, there will be plenty more pain to go around.

Written by Paul Ausick
Edited by Jon Ogg

December 9, 2008

However, distributable cash flow, Kinder Morgan’s preferred measurementof its performance, increased by 23% to $281.9 million, or $1.09/commonunit (up 14%), over the same period a year ago. Cash distributionsincreased to $1.02/common unit, up 16% over the third quarter of 2007.Results included a $15.2 million loss on certain items includingwrite-offs related to Hurricanes Gustav and Ike and three fires atKinder Morgan terminals. Business losses totaled $21.5 million werenot included in these items.

The company’s CO2 business increased earnings by 47%, due mostly to a2% increase in crude oil production from the Permian Basin and higherrealized prices for crude oil and natural gas liquids. The terminalsbusiness was up 21% to $132.4 million, primarily attributable to highercoal volumes.

As you might expect, the refined products pipelines business was off,down 9% from a year ago. The company attributed the decrease to thesale of a pipeline system and to decreased demand. Kinder Morgandoesn’t expect to meet its 5% growth projection for this segment in2008. The natural gas pipelines segment was up 25%, with transportationvolumes up 27% from a year ago. Most of that increase is due to thewestern portion of the Rockies Express pipeline becoming fullyoperational in May of this year.

Kinder Morgan stuck by its previous guidance of at least $4.02/commonunit in cash distributions for 2008. Kinder Morgan Management(NYSE:KMR) is expected to earn the same amount. The company did notecontinuing cost escalation on major projects "due to construction andmaterial costs, additional regulatory requirements, and weather delays."

Kinder Morgan has increased its cash distribution to common unitholders on numerous occasions. The pattern is unlikely tochange because distributable cash flow is what drives the company’smanagement. The company’s unit price closed down more than $2yesterday. But if there are other well run companies out therecurrently paying an 8.2% yield they are pretty hard to find.

Paul Ausick
October 16, 2008