On Wednesday, UBS has increased its price target on Kinder Morgan (NYSE:KMI) shares to $24 from $22, while maintaining a Buy rating on the stock. The firm's analyst cited several factors for the positive outlook, including confidence in the company's projected 2024 EBITDA and its potential for multi-year growth driven by natural gas and storage opportunities.
Kinder Morgan's performance, up approximately 12% year-to-date, has been on par with its peers in the American Midstream Partners Index (AMNA) and the Alerian MLP Index (AMZ). The company's stock sentiment is largely influenced by natural gas demand, particularly from data centers. Investors are expected to focus on Kinder Morgan's ability to meet its 2024 EBITDA midpoint target of $8.16 billion, capital expenditure trends, regulatory developments related to the Good Neighbor Plan, and capital allocation priorities.
Looking forward, Kinder Morgan seems to be well-positioned for growth, with opportunities mainly in new natural gas long-haul projects, LNG supply, storage, and data center sectors. During the upcoming earnings call, investors will seek clarity on the assumptions behind the EBITDA guidance midpoint, as detailed in the Investor Day presentation.
However, the company faces some headwinds. Kinder Morgan's initial 2024 crude guidance is based on an oil price assumption of $82 per barrel, but the year-to-date average price of $78.82 per barrel could lead to a $25 million EBITDA impact. Additionally, natural gas guidance assumes $3.50 per million cubic feet per day, while the year-to-date price of $2.08 per million cubic feet per day could result in a $20 million EBITDA impact. Management also noted that gathering volumes are approximately 5% below the original budget, due to weaker performance in the Bakken and Haynesville regions, which could impact annual EBITDA by roughly $34 million.
UBS's revised price target of $24 is based on a 2026 estimated enterprise value to EBITDA multiple of 9.7 times and a dividend discount model value of $22.
In other recent news, Kinder Morgan has been experiencing positive changes in its earnings before interest, taxes, depreciation, and amortization (EBITDA), leading to upgrades from Wells Fargo and CFRA. Wells Fargo increased its price target for the company to $22.00, upgrading the stock from Equal Weight to Overweight. This is due to an anticipated improvement in Kinder Morgan's gas storage and pipeline segments. Similarly, CFRA upgraded the stock from Hold to Buy and raised its price target to $22.00, citing the company's significant role in sourcing natural gas for liquefied natural gas exports.
In the wake of these developments, Kinder Morgan's first-quarter earnings aligned with expectations, with an adjusted EBITDA of $2,137 million. The company also announced an increase in its quarterly dividend to $0.2875 per share, marking a 1.8% year-over-year rise.
In other company news, Kinder Morgan's planned pipeline maintenance activities led to an unexpected surplus of gas in the Permian Shale in West Texas, causing spot power and natural gas prices to dip into negative territory. Despite this, analysts from Tudor Pickering Holt & Co. anticipate a surge in natural gas demand due to the growth of the artificial intelligence industry, which could benefit pipeline operators like Kinder Morgan.
InvestingPro Insights
As Kinder Morgan (NYSE:KMI) navigates through market expectations and operational challenges, real-time data and expert analysis offer additional perspectives. According to InvestingPro, Kinder Morgan has a consistent track record of raising its dividend, achieving an increase for 14 consecutive years, which aligns with UBS's positive outlook on the stock. This dividend reliability is an attractive feature for income-focused investors, especially when considering the company's current dividend yield of 5.81% as of the last twelve months leading up to Q1 2024. Additionally, Kinder Morgan's stock is trading near its 52-week high, currently at 99.45% of this peak, reflecting investor confidence and a strong market position.
However, it's important for investors to note that some analysts have revised their earnings expectations downwards for the upcoming period, which could indicate potential caution. Moreover, the company's short-term obligations exceed its liquid assets, a financial metric that could be significant for risk assessment. With a P/E ratio of 18.05 and a price to book value of 1.45, Kinder Morgan's valuation metrics provide a mixed picture, suggesting a need for a careful analysis of growth prospects versus current market pricing.
For those seeking a deeper dive into Kinder Morgan's financial health and future prospects, there are additional InvestingPro Tips available that could further inform investment decisions. Utilize the coupon code PRONEWS24 to receive an extra 10% off a yearly or biyearly Pro and Pro+ subscription, where you can access a comprehensive list of tips and metrics tailored to your investment strategy.
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