Goldman Sachs maintains $23 target on Kinder Morgan shares

On Monday, Goldman Sachs reaffirmed its Conviction Buy rating on Kinder Morgan (NYSE:KMI) with a steady price target of $23.00. The firm's analyst highlighted the upcoming third-quarter 2024 earnings, emphasizing key points of interest for investors. These include updates on approximately 5 billion cubic feet per day (bcf/d) of power demand projects, particularly the 1.6 bcf/d related to data center gas demand mentioned last quarter. Additionally, the analyst anticipates discussion on the need for increased Permian takeaway capacity following the Blackcomb project's final investment decision in July.

For the third quarter of 2024, Goldman Sachs forecasts Kinder Morgan's EBITDA to be $1,920 million, aligning with their recent predictions but slightly below the consensus estimate of $1,928 million and the company's guidance of $1,940 million. The discrepancy is attributed to expected challenges with commodity prices and volumes compared to Kinder Morgan's full-year 2024 forecasts.

The report also suggests that while commodity price and volume weaknesses in the current quarter may be temporary, there is a possibility that volume softness could extend into the first half of 2025. However, the analyst believes that updates on gas-focused projects could provide a counterbalance to these short-term issues.

Sequential growth is expected over the second quarter of 2024, driven by modest increases in gas, carbon dioxide, and product results. This growth is anticipated to stem from contributions from new projects, the ramping up of renewable natural gas (RNG) assets, and escalators in Federal Energy Regulatory Commission (FERC) index rates.

Adjustments have been made to the firm's estimates for 2025 and beyond to align with disclosures from Kinder Morgan regarding EPNG/TGP rates. Despite temporary setbacks in gas and oil volatility, Goldman Sachs foresees long-term tailwinds for Kinder Morgan, particularly in capturing growth related to the increasing demand for gas for power generation. The firm will continue to monitor project announcements as indicators of the company's trajectory. The valuation remains anchored at a $23 price target, with a Buy rating upheld.

In other recent news, Kinder Morgan has seen a rise in natural gas demand, reflected in a solid financial quarter with a 4% increase in adjusted EPS and a 3% rise in EBITDA. Morgan Stanley upgraded Kinder Morgan's stock from Underweight to Equalweight, setting a price target of $24.00, hinting at an acceleration in EBITDA growth. This upgrade is linked to Kinder Morgan's anticipated natural gas pipeline expansion projects, driven by rising demand, particularly from AI and data centers.

RBC Capital, while maintaining its Sector Perform rating on Kinder Morgan, raised the price target from $20.00 to $22.00. This decision followed Kinder Morgan's announcement of a new natural gas pipeline project aimed at meeting increasing power demand. Despite operational challenges, such as the impact of Hurricane Beryl, Kinder Morgan managed to increase its dividend by 2%, reported a net income of $575 million, and saw a 3% increase in gross margin.

The company's backlog also rose by $1.9 billion, driven by projects like South System 4 and Double H. While the CO2 segment experienced lower volumes compared to previous quarters, and gathering volumes are tracking below expectations, particularly in the Haynesville basin, Kinder Morgan remains optimistic about expanding transportation capacity and storage capabilities.

InvestingPro Insights

Kinder Morgan's financial metrics and market performance align with Goldman Sachs' positive outlook. According to InvestingPro data, the company's stock is trading near its 52-week high, with a robust year-to-date price total return of 29.24%. This performance supports Goldman's conviction buy rating and $23 price target.

InvestingPro Tips highlight Kinder Morgan's strong dividend history, having raised its dividend for 6 consecutive years and maintained payments for 14 years. This aligns with the company's stable financial position discussed in the article. The current dividend yield of 5.28% may be particularly attractive to income-focused investors.

While Goldman Sachs anticipates potential short-term challenges with commodity prices and volumes, InvestingPro data shows that Kinder Morgan remains profitable, with a P/E ratio of 20.17. This suggests that despite temporary setbacks, the market still values the company's earnings potential.

For readers interested in a deeper analysis, InvestingPro offers 5 additional tips and a comprehensive set of financial metrics for Kinder Morgan, providing valuable insights for investment decisions.

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