Digging Into Kinder Morgan's 10-K Yields Bullish Findings

Stifel’s Selman Akyol maintained a Buy rating for Kinder Morgan Inc KMI, while raising the price target from $17 to $19.

Following Kinder Morgan's 10-K filing, the 2016 Distributable Cash Flow [DCF] estimate has been reduced from $4.80 billion to $4.61 billion. This is marginally below management’s guidance of $4.69 billion.

Analyst Selman Akyol expects Kinder Morgan to pay a flat dividend of $0.125 per quarter and generate a coverage ratio of 4.1x. “In turn, we estimate excess coverage of $3.48 billion, which more than covers KMI’s $3.0 billion growth capital budget for 2016.”

The 2017 DCF, dividend and coverage estimates have been established at $4.90 billion, $0.125 per quarter and 4.3x, respectively. Akyol expects capex to be flat with 2016 at $3.0 billion.

“We estimate the partnership should generate excess cash flow of approximately $800 million, after funding its organic growth projects. However, KMI has $3.1 billion of debt maturities in 2017 that need to be refinanced or paid down,” the analyst mentioned.

Kinder Morgan’s shares are trading at the lower end of the projected 11x to 13x range, based on the 2016 EBITDA estimate of $7.46 billion, Akyol said. He stated that the projections for Kinder Morgan reflected its solid natural gas footprint, largely fee-based cash flows, partially offset by high leverage. The valuation has upside “should management reduce leverage from 5.5x debt-to-EBITDA.”