By Brian Nelson, CFA
On October 18, Kinder Morgan (KMI) reported third-quarter results that came in lower than expectations, but we’ve taken note of the company’s improved free cash flow generation that now runs in excess of its cash dividends paid, a huge change from a decade ago, where capital spending and cash dividends paid far outweighed its operating cash flow capacity. The company’s dividend stands at $1.13 per share on an annualized basis, and Kinder Morgan now has a forward estimated dividend yield of ~6.7%, which is quite attractive. Shares are trading meaningfully below our estimate of their intrinsic value, too, and we’re warming up to the company’s financials. Its net debt position likely precludes it from being added to any simulated newsletter portfolio at this time, however. Our $21 per-share fair value estimate remains unchanged.
Kinder Morgan’s third-quarter performance wasn’t great as both distributable cash flow and adjusted earnings fell from the same period a year ago due in part to higher interest expense, but demand for natural gas and storage solutions remains strong. The firm’s project backlog came in at $3.8 billion at the end of the third quarter, up modestly on a sequential basis. Though Kinder Morgan noted it expects to “finish 2023 slightly below (its) plan on a full-year basis,” its interconnected portfolio of assets remains a key competitive advantage that’s not going away anytime soon. Looking at its 10-Q shows a company that is now comfortably covering its cash dividend payments (~$1.9 billion through the first nine months of 2023) with traditional free cash flow ($2.48 billion through the first nine months of 2023). Its massive net debt position of ~$30.9 billion at the end of the third quarter still leaves a lot to be desired, in our view, however.
Please select the image below to download its 16-page stock report.
———-
Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
Valuentum members have access to our 16-page stock reports, Valuentum Buying Index ratings, Dividend Cushion ratios, fair value estimates and ranges, dividend reports and more. Not a member? Subscribe today. The first 14 days are free.