ET - Kinder Morgan: Let The Past Be The Past

2024-04-15 22:37:28 ET

Summary

• I see KMI as best-positioned among midstream peers to capitalize on growing US natural gas demand from LNG export additions and a potential catalyst in AI data centers.
• KMI shares have underperformed peers drastically, with the 2015 dividend cut still acting as a significant overhang on shares, masking operational progress achieved in the meantime.
• Valuation relative to peers on EV/EBITDA currently at lower end of 3Y range, which I find unwarranted given Kinder's peer-leading 1.3x margin expansion since FY20 vs flat peer average.
• I see a favorable set-up for shares with a 50/50 blend of a DDM and EV/EBITDA valuations indicating ~26% potential price upside.
• Alongside a 6.2% forward dividend yield, I estimate a total return potential of ~32% for 2024 and initiate shares at Overweight (PT $19.8).

Despite being one of the pioneers in the space and founder-led since 1997, Kinder Morgan ( KMI ) shares have significantly underperformed peers for more than half a decade, a late consequence of the company's 2015 dividend cut of 75%. Ever since then investors have been highly scrutinized of management, even coining the term of having been "kindered", referring to the company's then breach of its promise to sustainably grow dividends and the absence of dividend cuts at other major players....

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