Despite Recent Rally, Kinder Morgan Analyst Sees Outperformance Ahead

Kinder Morgan Inc KMI reported broadly in-line results first-quarter results Wednesday.

Although the oil pipeline operator's stock has appreciated 28 percent year-to-date, it will continue to attract investor attention, as investors focus on the importance of returns over growth and the company is able to highlight its financial flexibility, according to Raymond James.

The Analyst

Justin Jenkins maintains an Outperform rating on Kinder Morgan with an unchanged $21 price target.

The Thesis

Kinder Morgan reported first-quarter adjusted EBITDA of $1.947 billion, largely in-line with the Street estimate. The segment results were also mainly as expected, Jenkins said in a Thursday note. (See his track record here.)

The company reported quarterly discounted cash flow of $1.371 billion, beating the Street estimates of $1.247 billion on the back of lower maintenance capex.

Kinder Morgan’s strategic review process of its Canadian subsidiary Kinder Morgan Canada (KML) is still underway. Jenkins said management has three options: to run the subsidiary as a standalone business, sell it or decide on a strategic combination with another company.

The energy infrastructure company said the Canadian business represented only around 2 percent of its EBITDA in what the analyst said is “perhaps a subtle way to keep market expectations on possible KML proceeds in check."

Raymond James expects the stock to outperform over the next 12-18 months, with continued dividend growth, share buybacks and cash flow stability/growth into 2020.