On Tuesday, Citi updated its stance on Kinetik Holdings, Inc. (NYSE:KNTK) shares, increasing the price target to $44.00 from the previous $42.00, while maintaining a Neutral rating on the stock. The revision reflects anticipated growth following the company's recent Durango acquisition.
Kinetik's expansion into New Mexico has reportedly generated significant commercial interest, which could lead to sustained double-digit EBITDA growth for several years. This optimism is partly due to higher fees from gathering and processing (G&P), treating, and other services in the area.
The analyst noted that the increased business activity is likely to result in higher capital expenditures (CAPEX). Capex is projected to rise to $0.4 billion in 2025 to support the development of Kings Landing I and II, additional well-connect capex, and the Eddy County Agreement. Despite the higher capex, the firm's free cash flow estimate (FCFe) is expected to decrease in 2025 but remain positive.
Looking ahead, Citi anticipates that Kinetik Holdings will raise its dividend in the forthcoming declaration, which is expected in late October or early November. Although the anticipated dividend hike is modest at 3%, it is seen as a sign of durable growth that investors could positively receive.
The analyst's commentary highlights the balance between the company's investment in growth and the potential returns to shareholders in the form of dividends.
InvestingPro Insights
As Kinetik Holdings, Inc. (NYSE:KNTK) garners attention with its recent Durango acquisition and its subsequent expansion into New Mexico, InvestingPro data and tips provide additional context for investors considering the stock. Kinetik is trading at a low P/E ratio of 8.45, which is attractive relative to its near-term earnings growth. This is indicative of a potential undervaluation when taking into account the company's earnings trajectory. Furthermore, the company has shown a significant return over the last week, with a 7.62% price total return, which may suggest a positive market reception to recent developments.
Investors may also be encouraged by Kinetik's dividend yield, which stands at a robust 6.85%. This aligns with the analyst's expectations of a dividend increase and reflects the company's commitment to returning value to shareholders. Additionally, with a market capitalization of $6.9 billion and revenue growth in the last twelve months of 15.2%, Kinetik demonstrates solid financial metrics that could underpin its growth narrative. It's worth noting that while the company is trading near its 52-week high, the InvestingPro Fair Value estimation of $41.3 suggests a slight undervaluation compared to the previous closing price of $43.79.
For those interested in exploring further, there are additional InvestingPro Tips available, providing deeper insights into Kinetik's financial health and market performance. With these metrics in mind, investors can make more informed decisions regarding their interest in KNTK shares.
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