Goldman Sachs: Kinder Morgan Has 45% Upside

In a report published on Friday, Goldman Sachs analyst Theodore Durbin maintained a Buy rating and price target of $48 on Kinder Morgan, Inc. KMI, while adding the stock to Goldman Sachs' Conviction List, with more than 50 percent total return potential.

"In an uncertain macro, commodity price and volume environment, we see KMI as a safe haven due to its diverse portfolio of assets with a high percentage of fee-based, take-or-pay contracts," Durbin stated.

The analyst believes that the company is well positioned to achieve its targeted annual dividend growth rate of 10 percent through 2020, driven by organic project backlog worth $22 billion that is focused on "highly contracted infrastructure."

"We see upside from M&A, and believe KMI trades at too wide a discount relative to history and its peers," the Goldman Sachs report said.

Given its almost 90 percent of EBITDA and capex backlog that is fee based, the analyst sees Kinder Morgan as having "one of the most stable business models" in midstream, with good visibility into its potential to sustain growth.

According to the report, "As the largest natural gas pipeline operator in North America, we believe Kinder is well positioned to capitalize on organic growth opportunities in our favorite gas supply basin, the Marcellus/Utica, and on demand-driven infrastructure around power, LNG, and industrial growth."

The analyst also believes that upside could be driven if the company finds appealing acquisition candidates in the midstream segment, which is expected to consolidate going forward.