Kinder Morgan Falls After Guidance Update

Kinder Morgan Inc KMI shares are down after providing initial 2019 financial guidance, expecting 2019 EBITDA of $7.8 billion.

With the company tracking toward $7.53 billion EBITDA in 2018, Raymond James analyst Justin Jenkins says the year-over-year growth can be attributed to strong market fundamentals, as well as the Elba liquefaction and Gulf Coast Express growth projects, even with the drag of selling the TransMountain Pipeline.

Jenkins maintains a Strong Buy on the stock. (See his track record here.)

Closer Look

Kinder Morgan also issued FY19 distributable cash flow of $5 billion and says growth continues to be supported by a $6.5 billion backlog.

Jenkins says the company’s modest commodity price sensitivity offers some upside to 2019 guidance based on Raymond James commodity price outlook.

“Importantly, KMI’s budget is based on a 2019 price deck of $60/bbl WTI crude oil and $3.15/MMBtu Henry Hub natural gas, which were forward prices at the time the budget was developed internally,” Jenkins wrote in a note. “Management estimates that for every $1/bbl change in the annual average WTI price will have a ~$9 million impact on 2019 DCF.”

The analyst says Kinder Morgan also remains committed to multi-year dividend growth guidance, which calls for a dividend of $1 per share in 2019, a 25 percent year-over-year increase and $1.25 in 2020.

Jenkins says Kinder Morgan’s EBITDA outlook suggests there's some upside to 2019 estimates, but was hoping the company use the opportunity to shift the narrative from a capital allocation philosophy.

“While this did not happen explicitly, we do note that a step up in share buyback potential in 2019 would be received favorably," he wrote.

Price Action

Kinder Morgan shares traded down 3.2 percent to $16.74 at time of publication.

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