Kinder Morgan (KMI) stock price is firing on all cylinders. It has risen in the last nine consecutive months, moving to its highest point on record.
It has soared by 255.91% from its lowest point in 2020, giving it a market capitalisation of over $55.4 billion.
While Kinder Morgan’s performance has been a great performer, it has lagged behind other popular companies in the industry like Energy Transfer, ONEOK, and The Williams Companies, as shown below.
Company background
Kinder Morgan is a major player in the energy sector, where it provides the infrastructure needed to transport, store, and process crude oil and natural gas.
It is a Master Limited Partnership (MLP) that operates 82,000 miles of pipeline, 139 terminals, and 702 Bcf of natural gas storage capacity.
Kinder Morgan’s business has grown both organically and through acquisitions. For example, it acquired the STX Midstream pipeline project for over $1.8 billion in 2023. It also spent $267 million expanding the compression facilities in the TGP system.
Its other big acquisitions were El Paso Corporation ($38 billion) in 2012, Southern Natural Gas ($4.15 billion) in 2016, and Hilland Partners in 2015.
Kinder Morgan and other MLP companies have three main advantages. First, they operate in an industry with huge barriers to entry, meaning that no new companies are going to enter the business.
These barriers have become more common now that environmental activists have resisted several pipelines in the US.
Second, Kinder Morgan focuses on the stable, fee-based energy transportation and storage business model. This model ensures that the company generates revenues regardless of the oil and gas prices. As a result, it has done well even as natural gas prices have continued falling recently.
Additionally, oil and gas demand is expected to continue rising even as the US and other countries have focused on decarbonisation. Like other US companies, it has benefited from the ongoing war in Ukraine that has made the US a large player in the natural gas export industry.
Natural gas is an important part for Kinder Morgan since it accounts for about 64% of its total free cash flows.
A key catalyst for natural gas demand is in the data center industry, which is expected to increase US electricity demand by between 2% and 4% annually through 2030. More data shows that the number of coal plant retirements will continue.
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Kinder Morgan’s business is doing well
The KMI stock price has done well after the company published strong financial results last week.
These results showed that its earnings per share rose by 17% to 28 cents. Its closely watched distributable cash flow per share remained at 49 cents.
Kinder Morgan’s adjusted EBITDA rose by 2% last quarter to $1.88 billion. Most notably, it has a substantial project backlog of $5.1 billion, a notable achievement since it put projects worth $484 million online.
Kinder Morgan expects that its business will continue doing well in the final quarter of the year. It sees the net income rising to $2.7 billion.
Analysts expect that Kinder Morgan’s revenue for the quarter will be $4.15 billion, a 4.80% increase from the same period in 2023. For the year, its revenue will come in at $15.62 billion, higher than last year’s $15.62 billion.
Read more: Kinder Morgan vs Enbridge: Which is a better stock to buy?
KMI’s hefty valuation
A key concern for Kinder Morgan is that its business has become highly overvalued. It trades at a forward price-to-earnings ratio of 21.5, which is a few points above the forward S&P 500 index multiple of 21.0.
This is a hefty multiple for a company whose revenue growth is not all that strong. Analysts cite a few factors for this valuation. For one, it is a high-yield company that pays about 4.61% in returns.
Kinder Morgan has announced huge buybacks and dividends and has returned about 41% of its market cap to investors since 2016.
The challenge, however, is that the energy industry tends to be highly cyclical, meaning that the stock’s strong growth may start to reverse in the coming months.
Kinder Morgan stock analysis
KMI chart by TradingView
The weekly chart shows that the KMI share price has been in a strong bullish trend in the past few months.
It crossed the important resistance level at $17.31, its highest swing between June 2022 and January 2024. This was the upper side of the ascending triangle chart pattern.
The stock has remained above the 50-week and 100-week Exponential Moving Averages (EMA), meaning that bulls are in control for now.
Also, the Average Directional Index (ADX) has risen to 35, meaning that the strength is strong. The Relative Strength Index (RSI) has moved to the overbought point, while the Percentage Price Oscillator (PPO) has soared.
Therefore, while the stock has more upside, there is a risk that it will pull back and retest the key support at $17.31.
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