Kinder Morgan Earnings: Healthy Business Offset by Higher Interest Expense, Lower Prices

Key Morningstar Metrics for Kinder Morgan

• Fair Value Estimate: $17.50
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Kinder Morgan’s Earnings

Kinder Morgan’s KMI 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 expenses 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.

The firm continues to allocate capital prudently, in our opinion. Year-to-date buybacks of 28 million shares for $472 million at an average price of $16.58 and a dividend boost of 2% are reasonable. The firm’s project backlog of $2.7 billion (excluding carbon dioxide and gathering and processing efforts) has an expected EBITDA multiple of 4.7 times, which implies returns above 20%. More than 80% of the investments are heading toward low-carbon investments, such as renewable natural gas, liquids biofuels, and carbon capture and underground storage.

Notably, though, Kinder does not initially appear to be part of any of the seven hydrogen hubs that should soon receive $7 billion in funding from the U.S. Department of Energy. Meanwhile, peers Williams Companies WMB, Energy Transfer ET, and TC Energy TRP partnered up with successful hubs.