Kinder Morgan Earnings: Long-Term Growth Depends on US Gas Demand Trends

Key Morningstar Metrics for Kinder Morgan

• Fair Value Estimate: $22.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Medium

What We Thought of Kinder Morgan’s Earnings

We reaffirm our fair value estimate of $22 per share and narrow moat rating after reviewing Kinder Morgan’s KMI third-quarter and year-to-date results. The company is running slightly behind management’s $8.16 billion EBITDA full-year budget and our forecast after reporting $1.88 billion EBITDA during the third quarter, up only 2% year over year. We now expect less than 8% full-year growth in 2024, but we continue to assume 5% average annual EBITDA growth during the next few years, based on our bullish outlook for US gas demand.

The natural gas pipelines business segment remains the key growth driver, and it’s on track to generate about two-thirds of Kinder’s cash flow this year. Management reported a $5.2 billion backlog of projects, of which $3.5 billion are natural gas midstream projects. The backlog is up from $3.8 billion in the third quarter of 2023. We assume Kinder completes projects in its backlog and adds more growth projects in the coming years.

Kinder’s expansive footprint of assets gives it a solid position to benefit from what we think are secular growth trends for US natural gas, such as growing demand for gas power generation, US LNG exports, and exports to Mexico. Kinder’s $455 million Gulf Coast Express Pipeline expansion and $94 million NGPL Gulf Coast Storage expansion, which made key development progress during the quarter, are two growth investments that will help meet gas demand.

Gas transportation and gathering volumes were up year over year during the quarter but growing more slowly than management anticipated at the beginning of the year. We think this is a temporary slowdown and expect growth to pick up in 2025 as new projects enter service. Earnings at the products pipeline and carbon dioxide segments were lower, partially offsetting gas transportation growth. These segments are more sensitive to energy commodity prices, particularly oil prices.