Why BofA Initiates Kinetic Holdings With Buy Rating

Kinetik Holdings Inc KNTK is strong growth and free cash flow story, given its ownership in the Permian natural gas takeaway and latent processing capacity, according to BofA Securities.

The Kinetik Holdings Analyst: Neel Mitra initiated coverage of Kinetik Holdings with a Buy rating and a price target of $80.

The Kinetik Holdings Thesis: Following the merger between EagleClaw and Altus Midstream, which created Kinetik Holdings earlier this year, the company now owns 800 million cubic feet per day (MMcf/d) of latent processing capacity, Mitra said in the initiation note.

“When fully utilized, the excess processing capacity should generate $150-$225mm of incremental EBITDA annually with no material capex,” the analyst wrote.

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“We recognize that competition among midstream service providers is high, but believe that KNTK has a leg up vs. competitors, as it can offer a bundled G&P and gas takeaway solution out of the Permian,” he added.

By 2024, the company’s pipeline is expected to contribute almost 40% of EBITDA “with the majority of this growth coming from take-or-pay, long-haul natural gas pipelines,” Mitra further mentioned.

KNTK Price Action: Shares of Kinetik Holdings are up 1.87% to $70.71 at the time of publication Thursday morning.

Photo: Courtesy Kinetik