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Why Kinder Morgan Has a High Operating Margin

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KMI’s enterprise value

Kinder Morgan (KMI) is the largest company in its peer group by enterprise value (or EV). Currently, KMI has an EV of $53.8 billion. EV, which is approximately equal to market equity value plus net debt (debt-cash), is an important metric for the valuation of an entire business. In comparison, equity value indicates a company’s value to its equity holders.

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KMI’s operating margin

Kinder Morgan has the highest operating margin among its selected peers. The reason for the low operating margins of its peers, including Energy Transfer Partners (ETP) and Williams Partners (WPZ), can be attributed to their involvement in the commodities acquisition and marketing businesses.

KMI’s EV-to-EBITDA multiple

Of the selected companies, Kinder Morgan has the highest consensus forward EV-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple of 12.5x. This indicates that although Kinder Morgan’s valuations have fallen, it’s still trading above most of its peers. This most likely reflects a premium for KMI, given its size and relatively stable earnings, dividend coverage, and project backlog.

KMI’s dividend yield

Kinder Morgan has the lowest dividend yield among its selected peer group. Low dividend or distribution yield indicates less riskiness. KMI’s MLP peers such as Energy Transfer Partners, Williams Partners, and EnLink Midstream Partners (ENLK) currently trade at distribution yields of 11.5%, 12.3%, and 10.8%, respectively.

KMI constitutes ~3.9% of the iShares Global Infrastructure ETF (IGF).

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