Kinder Morgan’s Resurgence: A New Era of Growth
After years of stagnant earnings and a flatlined stock price, Kinder Morgan has finally turned the corner. The natural gas pipeline giant’s stock has skyrocketed over 50% this year, adding $10 to its share price. But what’s behind this remarkable rally, and is it still a good time to invest?
Breaking Free from Contract Expirations
Kinder Morgan’s earnings had been stuck in neutral due to large contract expirations on major pipeline systems. However, the company has reached an inflection point, with adjusted EBITDA set to rise 8% this year to $8.2 billion. With contract expiration headwinds now in the rearview mirror, capacity on existing pipelines is filling up, driving higher contract renewal rates.
Fueling Growth: Expansion Projects and Acquisitions
Kinder Morgan is benefiting from high-return expansion projects and its $1.8 billion acquisition of STX Midstream last year. The company is investing $1.7 billion to expand a gas pipeline, supplying growing power and local distribution demand in southeast markets by 2028. This growth resurgence has sparked a rally in Kinder Morgan’s stock.
A Compelling Value Proposition
While Kinder Morgan’s dividend yield has fallen from over 6% to around 4%, and its stock price now trades at more than 12 times its free cash flow, these metrics remain attractive compared to the broader market. The S&P 500 currently offers a dividend yield of 1.2%, trading at more than 25 times earnings.
U.S. Gas Demand on the Rise
Kinder Morgan is poised to benefit from an expected surge in U.S. gas demand, which is projected to increase by 19% through 2030. The potential uplift from AI data centers could add upwards of 10 Bcf/d of incremental demand by 2030. With pipeline utilization already increasing, Kinder Morgan is signing new contracts at longer terms or higher rates, providing opportunities for expansion.
A Rich Opportunity for Continued Expansion
Kinder Morgan sees a rich opportunity for continued expansion, with $4.2 billion of natural gas projects in its backlog. The company expects to announce additional significant projects over the next several months, allowing it to expand and extend its network to better serve customers and benefit its bottom line.
A Solid Buy for the Long Term
While Kinder Morgan may not be the screaming bargain it once was, the company still trades at a compelling valuation and dividend yield. With lots of growth coming down the pipeline, Kinder Morgan looks like a solid buy for the long term, even after its epic rally this year.
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