Thursday, July 16, 2015

Kinder Morgan Inc. Q2 Review

On July 15th, Kinder Morgan released its earnings for the second quarter of FY15. The company missed on revenue and missed EPS estimates by $0.04. Even though KMI's share price is down approximately 20% since its 52-week high of $44.71, there are some positive things to note that happened during the quarter. First off, Kinder Morgan declared a $0.49 dividend, which represents a 14.0% increase from the $0.43 dividend declared in the same quarter last year. The company is on track to meet its $2/share dividend target for the full year, while maintaining distribution coverage above 1x. Moving to its business segments, KMI's natural gas pipeline segment rebounded slightly from Q1 where earnings were down by about 7%. For the second quarter earnings for this segment rose 1% YoY to $965MM. Q2 earnings in the products pipeline segment grew 32%, and earnings in the terminals business were up 19%. The one area that performed poorly was the CO2 segment, which fell 20% in the second quarter due to commodity price fluctuations. Lastly, Kinder Morgan added $3.7B to its backlog of planned investment, most of it from a $3.3B portion of the Northeast Energy Direct pipeline, which will bring natural gas to markets near NY and Massachusetts. In lieu of the earnings release, I have adjusted my model to arrive at an appropriate price target. My new price target is $44.70, which represents 19% upside from its current price of $37.4. If shares of Kinder Morgan are to drop below $35 I think it would be a good time to pull out, although it hasn't traded that low since mid-October. The company's investment thesis is still intact and I see a lot of potential for growth going forward.

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