On Friday, BofA Securities revised its stance on Kinder Morgan (NYSE:KMI), upgrading the company's shares from Neutral to Buy and increasing the price target to $27.00, up from the previous $23.00. The adjustment comes amid a period of uncertainty in the energy sector, where BofA Securities identifies value in companies with contracted natural gas pipelines.
Kinder Morgan is anticipated to capitalize on the demand generated by Gulf Coast LNG projects and the push towards electrification by AI and utility companies. The upgrade to Buy reflects the stabilization of Kinder Morgan's base business, with the growth in the natural gas pipeline segment compensating for the declines in the CO2 and product pipeline divisions.
The firm has demonstrated its capability to source gas for utilities, evidenced by last quarter's sanctioning of a $3 billion expansion for a 1.2 billion cubic feet per day Southern Natural Gas (SNG) pipeline. This strategic move is expected to contribute to long-term contracted growth for Kinder Morgan.
BofA Securities has adjusted its financial estimates for Kinder Morgan through 2026 and increased the discounted cash flow (DCF) terminal value growth rate to 2% from 1.5%, aligning it with that of Williams Companies (NYSE:NYSE:WMB). The weighted average cost of capital (WACC) for Kinder Morgan has also been lowered to 7% from 7.5%, reflecting the company's more contracted business mix.
Despite the positive outlook, BofA Securities notes that the company faces downside risks, including the commercial success of its endeavors and the potential impact of higher interest rates on its operations.
In other recent news, Kinder Morgan has been navigating a series of developments. The company has been contending with fuel shortages in Florida as Hurricane Milton approaches, leading to the shutdown of its Central Florida Pipeline system and all fuel delivery terminals in Tampa.
Despite these challenges, Kinder Morgan has shown resilience with the backing of analysts. Goldman Sachs has reaffirmed a Conviction Buy rating on the company with a steady price target of $23.00, citing the potential impact of power demand projects. The firm forecasts Kinder Morgan's EBITDA for the third quarter of 2024 to be $1,920 million.
Morgan Stanley has upgraded Kinder Morgan's stock from Underweight to Equalweight, setting a price target of $24.00. This upgrade is linked to Kinder Morgan's anticipated natural gas pipeline expansion projects, driven by rising demand, particularly from AI and data centers.
RBC Capital, while maintaining its Sector Perform rating on Kinder Morgan, raised the price target from $20.00 to $22.00 following the company's announcement of a new natural gas pipeline project aimed at meeting increasing power demand.
Despite operational challenges, Kinder Morgan managed to increase its dividend by 2%, reported a net income of $575 million, and saw a 3% increase in gross margin. These recent developments all contribute to a dynamic landscape for Kinder Morgan.
InvestingPro Insights
Kinder Morgan's recent upgrade by BofA Securities aligns with several key metrics and trends highlighted by InvestingPro. The company's stock has shown strong performance, with a 33.05% price total return over the past six months and a 49.87% return over the past year. This upward momentum is reflected in the stock trading near its 52-week high, with the current price at 99.52% of that peak.
InvestingPro Tips suggest that Kinder Morgan has maintained dividend payments for 14 consecutive years and has raised its dividend for 6 consecutive years. This consistent dividend policy supports BofA's view on the company's stable base business. The current dividend yield stands at an attractive 4.85%, which may appeal to income-focused investors.
While the P/E ratio of 21.76 indicates a relatively high valuation, it's worth noting that analysts predict the company will remain profitable this year. This profitability forecast aligns with BofA's positive outlook on Kinder Morgan's growth prospects, particularly in the natural gas pipeline segment.
For investors seeking a deeper analysis, InvestingPro offers 13 additional tips for Kinder Morgan, providing a more comprehensive view of the company's financial health and market position.
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