Credit Suisse Upgrades Kinder Morgan To Outperform, Sees 40% Upside

• Kinder Morgan Inc KMI shares have been on a downward trajectory over the past six months, and have lost 60 percent since July 28.
• Credit Suisse’s John Edwards upgraded the rating for the company from Neutral to Outperform, while raising the price target from $18 to $20.
• Despite what happens in energy markets, there is limited downside to Kinder Morgan, Edwards stated.

Management has indicated high grading capital projects, its plans to use internally generated cash to fund the future in 2016 and beyond, deleveraging over time and minimal credit risk exposure. Moreover, Kinder Morgan expects to generate about $0.88 per unit in growth to 2020 from announced projects in the backlog. This translates to a CAGR of about 7 percent.

Analyst John Edwards wrote, “Assuming no equity issuance and excess cash is used to de-lever the balance sheet we see ~$3/share in DCF on a platform of ~4.5x Debt/EBITDA. Assuming ~2 turns above the current multiple (assuming production not falling anymore and recognition for lower leverage) we obtain roughly a double in the equity or roughly 18% CAGR over 5 years, a solid value proposition in our view.”

“Hard to see much downside from here, no matter what happens in energy markets,” Edwards commented. There is low sensitivity to commodity price changes. Even if average WTI were to plunge to $20/bbl and gas at $1.75/mmbtu, management expects downside of merely $120mm to its budgeted dividend coverage of $3.57B.

The analyst mentioned that the stock’s current levels reflect “little meaningful downside risk,” while adding that the name represents “a low risk long term growth story.”