Kinder Morgan: A Compelling Buy Below $25
Kinder Morgan’s stock has been on a tear, surging nearly 50% over the past year and recently hitting its highest level in almost a decade. With the stock price dipping just below $25 per share, investors may be wondering if now is a good time to buy.
Strong Fundamentals
Kinder Morgan’s third-quarter results were impressive, with the company generating $0.49 per share of distributable cash flow (DCF). This puts it on track to produce around $2.26 per share, or about $5 billion, of DCF for the full year, approximately 8% higher than 2023’s level.
Undervalued and High-Yielding
With a stock price below $25 per share, Kinder Morgan trades at 11 times its earnings, making it extremely cheap compared to the broader market. The S&P 500 trades at more than 25 times earnings, while the Nasdaq-100 index sells for more than 32 times earnings. Kinder Morgan’s dirt-cheap valuation is also reflected in its high dividend yield of 4.6%, several times higher than the S&P 500’s current dividend yield of around 1.3%.
Growth Catalysts
Despite its low valuation, Kinder Morgan has a strong growth profile. Natural gas demand is increasing, driven by exports, rising power and industrial demand in the U.S., and emerging catalysts like AI data centers. The company estimates that these factors will increase consumption by 20 billion cubic feet per day (Bcf/d) by 2030 from last year’s level of 108 Bcf/d.
Investing in Growth
Kinder Morgan is capitalizing on the acceleration in gas demand by investing in new projects. The company recently approved a $1.7 billion investment into the South System Expansion 4 Project and a $161 million investment to expand the Gulf Coast Express Pipeline. These projects are part of its $5.1 billion commercially secured backlog and will grow its cash flow as they come online over the next several years.
A Compelling Buy
While Kinder Morgan’s stock has rallied nearly 50% over the past year, it’s still a compelling buy below $25 per share. The company’s lower valuation, higher yield, and increasingly robust growth profile make it an attractive investment opportunity. With its strong fundamentals and growth catalysts, Kinder Morgan has the potential to continue producing robust total returns over the next several years.
Leave a Reply