High-Yield Kinder Morgan Is Still A Buy
2022.04.22 11:11
Kinder Morgan (NYSE:KMI)caught our eye last year as a high-yielding value that we might want to own. The company was exiting a period of underperformance and reorganization and looking ahead to a favorable market environment. The value and yield aren’t quite what they were, but the stock is still a buy. Kinder Morgan trades at only 18X its earnings and pays what we view as a safe 5.6% yield. We say safe because the company is living within its cash flow, budgeting appropriately, and business fundamentals continue to be strong.
KMI Executive Chairman Richard D. Kinder said,
“The company is off to a great start this year and once again generated robust earnings and strong coverage of this quarter’s dividend. We continue to live within our cash flow, have reduced our debt by more than $11 billion since 2015, and plan for this year to be the fifth consecutive year of increased dividends. During 2022 we expect to once again fund our expansion capital opportunities internally, meet or exceed our debt metric goal, and return excess cash to our shareholders through a dividend increase and opportunistic share repurchases.”
The sell-siders are in general agreement that this is a stock to own. The consensus rating is a firm Hold with an uptrending price target. The bad news is the Marketbeat.com consensus target assumes the stock is fairly valued at current price levels. The good news is the consensus is up in the 12, 3, and 1-month comparison, and the high price target is the most recent. Two commentaries have been released since the Q1 report, including two price target increases and the high-price target of $22, which implies a 15% of upside for the stock, and we think that target will creep higher over the next 12 months as well.
Kinder Morgan Beats In Q1, Guides Favorably
Kinder Morgan was expected to post a YOY decline in revenue and earnings, but there is a one-off factor to consider. That factor was Winter Storm Uri, and the takeaway is that revenue and earnings fell much less than expected. The company reported $4.29 billion in consolidated revenue for a decline of 17.7% over last year but beat the consensus estimate by over 1100 basis points. The performance was driven by strength in the Natural Gas and CO2 segments, and the outlook for those businesses is firming. On the bottom line, the company reports $0.32 in earnings, down from last year’s $0.60, but $0.04 or 1400 basis points better than expected.
“Excluding Uri-related earnings from our 2021 results, earnings per share for the quarter were up 17% and DCF per share was up 16% as compared to the first quarter of 2021.”
Kinder Morgan Raises 2022 Dividend
Kinder Morgan raised its dividend by 3% during the quarter bringing the yield up to 5.6%. This is the 5th consecutive increase for the company and not the last of the balance sheet, results, and outlook have anything to do with it.
Turning to the chart, shares of KMI have been trending higher since December 2022 and are on track to continue that trend. Premarket action has the stock up another 1% already and trading at $19.97 and the highest level since the pandemic began. Assuming the market follows through on the rally, we see this stock breaking out to a new high and moving higher as the year progresses. In that scenario, the next target for resistance is near $22.
Kinder Morgan Stock Chart.
