Company Reports

Kinder Morgan's assets span the energy landscape, from natural gas and natural gas liquids to oil and liquefied natural gas.

Kinder's second-quarter earnings were solid, in our view. We see no reason to change our $22 per share fair value estimate or narrow moat rating. The firm reaffirmed 2024 guidance of $8.16 billion in EBITDA, essentially matching our view, which is up 8% over 2023 levels. Due to its expansive footprint of assets, we continue to think Kinder is one of the better-positioned US midstream firms to capture artificial intelligence and data center demand out to 2030, as well as higher US LNG exports and Mexican natural gas exports.

Kinder Morgan's assets span natural gas, natural gas liquids, oil, and liquefied natural gas. The company's US gas pipeline business is particularly impressive. Management claims its daily gas transportation capacity is equivalent to 40% of average US gas consumption, that it handles 50% of the LNG market, and serves 20% of US power demand. Kinder serves most major US gas supply and demand regions.

We think AI and data center demand offers a potentially sizable growth opportunity across our US E&P and US & Canadian midstream coverage list. We consider Chart Industries, Energy Transfer, Enbridge, Kinder Morgan, and TC Energy as undervalued ways to play this trend. Cheniere Energy and Williams are more fairly valued, while Antero, Range, and likely EQT (not covered) are obvious direct opportunities and appear expensive.

Kinder Morgan's assets span natural gas, natural gas liquids, oil, and liquefied natural gas. The company's US gas pipeline business is particularly impressive. Management claims its daily gas transportation capacity is equivalent to 40% of average US gas consumption, that it handles 50% of the LNG market, and serves 20% of US power demand. Kinder serves most major US gas supply and demand regions.

Kinder Morgan’s first-quarter earnings and 2024 outlook met our expectations. 2024 EBITDA is expected to be about $8.16 billion, up 8% from 2023, within striking distance of our $8.2 billion forecast. The growth is despite the weakness in US natural gas prices, as healthy results from storage, gathering volumes, and the recently completed STX Midstream deal helped. That said, gathering volumes are trending lower than initially expected due to price weakness, so Kinder expects to delay about 10% of its planned 2024 gathering and processing spending until the market can support it. After slightly increasing our long-term estimates for growth, we expect to increase our fair value estimate to $22 from $20 per share.

Kinder Morgan's assets span natural gas, natural gas liquids, oil, and liquefied natural gas. The company's U.S. gas pipeline business is particularly impressive. Management claims its daily gas transportation capacity is equivalent to 40% of average U.S. gas consumption and it handles 50% of the LNG market. LNG remains a key growth driver, particularly for gas storage assets. Kinder serves most major U.S. gas supply and demand regions.

Kinder’s fourth-quarter earnings were weak on a year-over-year basis with modest declines, largely due to lower-than-planned commodity prices and a relatively mild start to winter 2023. Fourth-quarter EBITDA declined to $1.925 billion from $1.957 billion year over year because of the weakness in the natural gas operations.

Kinder Morgan's assets span natural gas, natural gas liquids, oil, and liquefied natural gas. The company's U.S. gas pipeline business is particularly impressive. Management claims its daily gas transportation capacity is equivalent to 40% of average U.S. gas consumption and it handles 50% of the LNG market. LNG remains a key growth driver, particularly for gas storage assets. Kinder serves most major U.S. gas supply and demand regions.

Kinder's 2024 outlook was a bit better than our expectations. After updating our model, we are increasing our fair value estimate to $20 per share from $17.50 a share. Our narrow moat rating is unchanged.

Kinder Morgan's assets span natural gas, natural gas liquids, oil, and liquefied natural gas. The company's U.S. gas pipeline business is particularly impressive. Management claims its daily gas transportation capacity is equivalent to 40% of average U.S. gas consumption and it handles 50% of the LNG market. Kinder serves most major U.S. gas supply and demand regions.

Kinder Morgan has been discussing the growth opportunities available in Mexico for gas exports for over a decade now, so it’s not much of a surprise to see them jump on a deal to expand its portfolio in the area. The $1.8 billion purchase of NextEra Energy’s STX Midstream serves that need. The pipeline system has about 4.9 billion cubic feet per day of capacity, primarily connecting the Eagle Ford basin to the Mexican and Gulf Coast (or liquefied natural gas demand) markets. Over 75% of contracts are take-or-pay, which we consider strong, and contract lengths average over eight years. The assets connect with multiple Kinder assets, including Texas intrastate assets, Tennessee Gas Pipeline, and Natural Gas Pipeline of America. This is a solid deal in all respects, and we consider the purchase price fair at about 7-7.5 times EBITDA after synergies. This purchase is not material enough to move our $17.50 fair value estimate or change our narrow moat rating.

Kinder Morgan’s earnings were solid, in our view, and we maintain our $17.50 fair value estimate and narrow moat rating after updating our model. In general, volumes across the business are doing very well, helped by healthy liquefied natural gas demand, but this is almost entirely offset by higher interest expense and lower oil and gas prices. While EBITDA was up 3% year over year to $1.8 billion, pretax income fell 4% to $700 million. Overall, EBITDA is tracking well toward our $7.7 billion forecast for 2023.

Kinder Morgan's assets span natural gas, natural gas liquids, oil, and liquefied natural gas. The company's U.S. gas pipeline business is particularly impressive. Management claims its daily gas transportation capacity is equivalent to 40% of average U.S. gas consumption and it handles 50% of the LNG market. Kinder serves most major U.S. gas supply and demand regions.

Kinder Morgan's assets span natural gas, natural gas liquids, oil, and liquefied natural gas. The company's U.S. gas pipeline business is particularly impressive. Management claims its daily gas transportation capacity is equivalent to 40% of average U.S. gas consumption and it handles 50% of the LNG market. Kinder serves most major U.S. gas supply and demand regions.

Kinder Morgan’s second-quarter results were solid in our view. The firm flagged that it may fall slightly short of its 2023 forecast of $7.7 billion, which matches our current forecast, due to lower oil and gas prices. However, we don’t consider the difference material enough to adjust our $17.50 fair value estimate or narrow moat rating. The shortfall is likely most pronounced in U.S. gas prices, where Kinder Morgan assumed $5.50 per million cubic feet for 2023, whereas recent prices were around $2.50. Realized natural gas liquids' pricing for Kinder is also down 25% year over year.

Kinder Morgan's assets span natural gas, natural gas liquids, oil, and liquefied natural gas. The company's U.S. gas pipeline business is particularly impressive. Management claims its daily gas transportation capacity is equivalent to 40% of average U.S. gas consumption and it handles 50% of the LNG market. Kinder serves most major U.S. gas supply and demand regions.

Kinder Morgan’s first-quarter results were reasonably healthy given the relatively weaker oil and gas price environment. The firm reaffirmed its 2023 EBITDA outlook of $7.7 billion. We will maintain our $17.50 per share fair value estimate and narrow moat rating.

On March 30, the U.S. House of Representatives voted 225-204 to pass HR 1, the Lower Energy Costs Act. While Democrats in the Senate have indicated they will reject the legislation in its current form, we still consider this a positive step forward for oil and gas (and solar and wind) permitting reform in the United States.

The U.S. gas price outlook looks weak in the short run, in our view, but the outlook should begin to improve in late 2023 and 2024. From a stock perspective, though, we think 2023 will present a potentially very good opportunity to acquire high-quality names leveraged to gas demand at a discount. We favor companies such as Kinder Morgan, Williams, Cheniere, and TC Energy.