Kinder Morgan Earnings: Solid Q3 Results Led by Natural Gas Business

Kinder Morgan Stock at a Glance

• Current Morningstar Fair Value Estimate: $17.50
• Kinder Morgan Stock Star Rating: 3 Stars
• Economic Moat Rating: Narrow
• Moat Trend Rating: Stable

Kinder Morgan Earnings Update

Kinder Morgan’s (KMI) third-quarter results were solid, with its natural gas business leading the way. 2022 guidance was unchanged from last quarter, and we continue to expect about $7.6 billion in EBITDA. We think the firm has done a very good job managing costs in this inflationary environment, as management pointed out that its cost increases are much lower than the producer price inflation indexes. After updating our model for minor adjustments, we maintain our $17.50 fair value estimate and narrow moat rating.

With the business performing well, the larger insights are more on the capital allocation side this quarter, where we think Kinder is making good decisions. Kinder continues to add renewable natural gas assets via acquisition, adding North American Natural Resources and related companies for $135 million in August. The acquisition includes several landfill-to-gas power facilities, and Kinder plans to convert several to renewable natural gas by 2024. The deal is in addition to the earlier $355 million acquisition of Mas CanAm earlier this year. The deals look particularly attractive with expected EBITDA multiples well under 10 times, compared with BP’s recent announcement that it will acquire biogas peer Archaea for an expected 2022 EBTIDA multiple closer to 30 times per PitchBook estimates. Similarly, Kinder sold off a 25.5% stake in its Elba LNG terminals to an undisclosed buyer for $565 million at an attractive 13 times EBITDA multiple, well above its own valuation multiple.