Kinder Morgan Is A Buy After Pipeline Sale To Canadian Government, Wells Fargo Says In Upgrade

Kinder Morgan Inc KMI's sale of its Trans Mountain pipeline and related infrastructure to the Canadian government for the U.S. dollar equivalent of $3.4 billion eliminates two overhangs that prevented a bullish stance on the stock, according to Wells Fargo.

The Analyst

Wells Fargo's Michael Blum upgraded Kinder Morgan from Market Perform to Outperform with an unchanged $20 price target.

The Thesis

Kinder Morgan's transaction with Prime Minister Justin Trudeau's government not only removes the ongoing overhang of uncertainty in Canada but improves its balance sheet and leverage, Blum said in the upgrade note.

Proceeds from the sale will help the company achieve a 4.5x leverage by the end of 2018 and should remain unchanged throughout 2019 as part of Kinder Morgan's commitment to reducing leverage over the longer-term, the analyst said 

Wells Fargo added the pipeline company to its list of attractive "midstream reformers," which is reserved for companies that have taken the necessary steps to address the following, Blum said: 

  • The elimination of GP/IDR structure to improve corporate governments.
  • Self-funding for equity.
  • Capital discipline with a focus on return on investments.
  • Solid distribution coverage.
  • A path to boasting a conservative balance sheet.

Kinder Morgan could announce new organic projects that would make its growth story more visible, including a potential second Permian-to-Gulf Coast gas pipeline or a potential sale of its Kinder Morgan carbon dioxide business, which is the largest transporter of carbon dioxide in North America.

Price Action

Shares of Kinder Morgan were trading higher by more than 2 percent at the time of publication Monday morning. 

Related Link:

Argus: Kinder Morgan Has 25% Upside Potential


Posted In: CanadaJustin TrudeauMichael BlumpipelineTrans Mountain PipelineWells FargoAnalyst ColorUpgradesPrice TargetAnalyst Ratings