Kinder Morgan Positioned To Join Small Club Of Double-Digit Distribution Growth Plays

Morgan Stanley’s Tom Abrams believes the stability in Kinder Morgan Inc KMI's base business has kept investor attention on the pace of leverage reduction, the progress on TransMountain and the timeline for return of capital to shareholders.

Abrams maintains an Overweight rating on the company with a price target of $24.

Q3 Results

Kinder Morgan reported its Q3 results, with adjusted EBITDA of $1,770 million coming in ahead of the consensus and the estimate.

The company reported its adjusted EPS for the quarter at $0.15, in line with expectations, with DCF/unit at $0.48, marginally above the estimate.

However, both DCF and EDBITA declined year-on-year, “demonstrating aggregate stability in the underlying business,” the analyst mentioned.

Related Link: Credit Suisse Upgrades Kinder Morgan Ahead Of Expected Mid-2018 Dividend Step Up

TransMountain

Abrams believes the TransMountain JV has continued to increase in importance with regard to the company’s long-term story, now accounting for 48 percent of the estimated capex through 2020.

The analyst believes that “the terms of a JV agreement could have a significant effect on the pace at which KMI can return capital to shareholders over the next several years.”

Dividend

Management expects capital return in the form of dividend to increase significantly as Kinder Morgan approaches its target of 5.0x leverage over time.

“Suggestions on how much cash flow could be allocated to distributions suggests a payout of 70–75 percent, 10–15 pct points ahead of our expectations. This positions KMI as among a small potential group of midstream players who will be growing distributions at a double-digit pace in the 2018+ timeframe,” Abrams noted.

In the last minutes of pre-market trading Thursday, Kinder Morgan was seen up 3.52 percent at $21.44.

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