Midstream energy assets operator, Kinder Morgan, Inc. KMI is expected to report fourth-quarter 2015 earnings on Jan 20, after the closing bell.

In the last quarter, the company’s earnings of 19 cents per share beat the Zacks Consensus Estimate of 18 cents but plunged 40.6% from the year-ago earnings of 32 cents. Let’s see how things are shaping up prior to the announcement.

Factors Likely to Affect Earnings

Kinder Morgan is undergoing numerous large scale projects that could face delays or opposition. Delays in these projects are likely to defer cash flow realizations. In this respect, the TransMountain pipeline expansion in Canada deserves mention. Work on the pipeline has already been deferred by nine months due to local opposition and Canadian regulations. The project is expected to cost approximately $5.4 billion, which signifies about 30% of Kinder Morgan’s project backlog. Any further delay in the project will have an adverse impact on the company’s earnings as well as long-term growth.

Further, we believe that gas infrastructure opportunities are limited to the near-to-medium term. This is mainly due to low basis differentials and reduced dry gas drilling. The only positive we see for natural gas infrastructure is the Marcellus shale development.

Last quarter, Kinder Morgan had increased its dividend by 16% to $0.51 per share from $0.44 a year ago. However, this trend is not to be continued into the fourth quarter as the company announced a dividend cut of an approximately 75% on Dec 8. Kinder Morgan will shell out a quarterly dividend of $0.125 per share to its common stockholders beginning with the fourth quarter of 2015. This is down from the previous level of $0.51 per share for the third quarter of 2015.

However, Kinder Morgan is one of the largest midstream company in North America. We believe that the company’s size will prove to be advantageous with opportunities to build smaller adjacent pipelines at a lower cost than peers. Further, an increased demand for power generation and exports are expected to drive continued infrastructure build-out for the company in the coming quarters. Such positives are likely to boost future earnings as well.

Earnings Whispers

Our proven model does not conclusively show that Kinder Morgan is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP:  Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently -17.65%. This is because the Most Accurate estimate for Kinder Morgan stands at 14 cents, while the Zacks Consensus Estimate is pegged at 17 cents.

Zacks Rank: Kinder Morgan carries a Zacks Rank #3. Though a favorable Zacks Rank increases the predictive power of ESP, the company’s negative ESP makes surprise prediction difficult.

Conversely, we caution against Sell-rated stocks (Zacks Rank #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies from the same space which, according to our model, that have the right combination of elements to post an earnings beat this quarter:

Murphy USA Inc. MUSA has an Earnings ESP of +7.41% and a Zacks Rank #1.

Scana Corporation SCG has an Earnings ESP of +2.50% and a Zacks Rank #2.

Baker Hughes Inc BHI has an Earnings ESP of +20.00% and a Zacks Rank #3.


(We are reissuing this article to correct a mistake. The original article, issued on Jan 18, 2016, should no longer be relied upon.)