Buy Kinder Morgan, It's A Market Leader And Has M&A Potential, SunTrust Says

In a report published Tuesday, SunTrust Robinson Humphrey analyst Tristan Richardson initiated coverage on Kinder Morgan Inc KMI with a Buy rating and a price target of $48. Kinder Morgan is a large diversified midstream operator focused on oil & gas pipeline, storage, terminal and gathering and processing infrastructure in the US. The company's strengths lie in its wide footprint across the commodity segment, especially in large scale natural gas pipelines. "Kinder offers a differentiated advantage to customers with its high connectivity in several production areas with connections to end market demand. The company is positioned well for further growth with a substantial backlog of organic projects backed by customer commitments," analyst Tristan Richardson mentioned. The company's fee based model is highly attractive in the current environment. The expected slowdown in production is unlikely to have a significant negative impact on Kinder Morgan's volumes. In the report SunTrust Robinson Humphrey noted, "KMI has significant opportunities in backlog for terminal facilities, storage, pipeline projects and export facilities backed by firm customer commitments. We look for growth from these projects in the current environment." Kinder Morgan has a sufficient and diversified backlog of organic growth projects that should enable the company to post high single digit EBDA and cash flow growth over the next few years. "With a handful of planned projects that are not in the backlog, the company has opportunity to grow beyond the current slate, although the "shadow backlog" is subject to higher timing risk," Richardson pointed out. The company is expected to continue consolidating and participating in M&A deals. "We look for acquisitions to add some $250-$350 million in annual EBDA over the next several years, although timing can be irregular," the report added.