Kinder Morgan Delivers Solid Q4

Kinder Morgan’s (KMI) fourth-quarter results were solid, as the firm met its 2021 EBITDA guidance (factoring in winter storm Uri benefits) of $7.95 billion, as we expected. 2022 EBITDA guidance of $7.2 billion reflects about 5% growth over 2021 levels excluding the one-time storm contributions. Updating our model to include Kinder’s reaffirmed 2022 guidance, which was released in December 2021, doesn’t impact our fair value estimate. However, we will leave our fair value estimate and narrow moat in place to add further updates from Kinder’s investor day on Jan. 26 and from rolling our model to 2022.

While Kinder’s business is largely utilitylike and highly stable, we do think there are some promising opportunities in 2022. The largest remains liquified natural gas, or LNG, as Kinder currently handles about 50% of U.S. LNG, and the increase in expected export demand is already starting up discussions between Kinder and customers about a potential new Permian or Haynesville gas pipeline entering service in 2023 or 2024. Reduced flaring by U.S. exploration and production companies and thus higher gas production is also a plus. Next, Kinder continues to develop low-carbon projects associated with Kinetrex Energy (three landfill-based renewable natural gas facilities), and we think there will be more projects added here in 2022 given strong customer interest. Finally, Kinder has, once again, highlighted its $750 million in available 2022 cash for buybacks, or other attractive investments. While Kinder’s stock is about fairly valued, we think this could be a good use of cash if the stock were to decline to a material discount. We think the size of the potential buyback stands out versus U.S. midstream peers. Further, with large sizable buybacks already completed in 2017 and 2018, we have a greater degree of confidence that Kinder will take advantage of any stock price declines.