Credit Suisse Raises Kinder Morgan Price Target, Sees Modest Accretion From Hiland Partners Deal

Credit Suisse increased its price target on Kinder Morgan Inc KMI Thursday from $49 to $50 and maintained an Outperform rating following its Q4 results.

Analysts led by John Edwards noted, “Operationally, the quarter was in line with our estimates, dividends declared exceeded the 2014 budget by $0.02/share at $1.74/share, and the excess dividend coverage increased by about $300mm to $320mm as a result of the restructuring transaction that closed earlier in Q4.”

Edwards was surprised by “the announcement that KMI would acquire Hiland Partners from Harold Hamm and certain Hamm family trusts for $3B plus another $800mm is expected to be invested over the next 4 years. While the transaction is ‘modestly accretive’ for 2015 and 2016, KMI is guiding to 6-7 cents/share 2017 accretion (2-3 percent) and a 10x EBITDA multiple by 2018, which we model as ~4 percent accretive.”

“The accretion should support a slight acceleration to KMI's prior dividend forecast despite what otherwise looks like an expensive transaction, so we view this as a modest positive despite the negative reaction in the shares in the aftermarket,” according to the analysts.

The $50 price target was based on the firm’s 3-Stage DDM with 11.5 percent distribution growth over the first five years, 8.2 percent growth over the second five years, and a 2.25 percent terminal rate discounted at 9 percent.

Kinder Morgan recently traded at $42.34, up 0.81 percent.