Get the Latest Investment Ideas Delivered Straight to Your Inbox.

TICKERS: KMI

Rating Downgraded But Value Maintained on Energy Infrastructure Firm
Research Report

Source:

The current headwinds facing the company and their expected impact are described in a BMO Capital Markets report.

In a July 29 research note, analyst Danilo Juvane reported that BMO Capital Markets downgraded its rating on Kinder Morgan Inc. (KMI:NYSE) to Market Perform due to a paucity of upcoming catalysts and the likelihood of decreased future revenue. "We see Kinder Morgan stock as having a balanced risk/reward," added Juvane.

At the same time, BMO maintained its $22 per share target price on Kinder Morgan because the energy firm has been "one of the best year-to-date performers in the midstream sector," Juvane highlighted. This was driven by its "significant deleveraging, an improved organic growth outlook and financial flexibility." Kinder Morgan's current share price is around $20.68.

In terms of catalysts on the horizon, the only possibilities are a sale of the CO2 business or a sale of Kinder Morgan Canada Ltd. "However, we don't see either catalyst materializing," Juvane commented. Kinder Morgan Canada has indicated it intends to keep its structure intact, and the Tall Cotton issues will likely preclude Kinder Morgan receiving an acquisition proposal at an attractive multiple.

Regarding the expectation for decreased revenues, Juvane pointed out they're likely to come, in part, from Kinder Morgan's carbon dioxide segment, specifically, due as a result of recent suspension of Tall Cotton capex. BMO estimated the resulting drop in EBITDA by 2023 at $300 million.

Another factor likely to negatively affect revenue is the "well-known" and "well-worn" interstate pipeline contract roll-offs, Juvane noted. "We see base contract declines and headwinds from the 501-G process as reducing EBITDA by about $200 million and $100 million, respectively, by 2023."

To offset the expected earnings drop and grow instead, wrote Juvane, Kinder Morgan must "deploy its targeted $2.5 billion in discretionary capex." Were the company successful in doing so, it could mean "23% EBITDA growth in the long term, which is also likely to mirror long-term growth in the payout."

[NLINSERT]

Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from BMO Capital Markets, Kinder Morgan, July 29, 2019

IMPORTANT DISCLOSURES

Analyst's Certification
I, Danilo Juvane, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.

Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Company Specific Disclosures
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Kinder Morgan, Inc.
Disclosure 6C: Kinder Morgan, Inc. is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 9B: BMO Capital Markets makes a market in Kinder Morgan, Inc. in United States.

For Important Disclosures on the stocks discussed in this report, please click here.




Want to read more about Oil & Gas - Services investment ideas?
Get Our Streetwise Reports Newsletter Free and be the first to know!

A valid email address is required to subscribe