Does Kinder Morgan’s Valuation Indicate Possible Upside?



Kinder Morgan’s valuation

Currently, Kinder Morgan’s (KMI) forward PE ratio is ~18.8x. The PE ratio is ~44% lower than Kinder Morgan’s average over five years. The lower ratio indicates undervaluation compared to its historical average. Kinder Morgan stock is trading ~15% below its highs of ~$23 more than two years ago. At that time, the company had a PE ratio of ~30x. Kinder Morgan’s fall is in line with the Energy Select Sector SPDR ETF (XLE) during this period.

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Comparison with peers

ONEOK (OKE) is trading at a forward PE ratio of ~20.2x. Williams Companies (WMB) is trading at a forward PE ratio of ~28.2x. The forward PE ratio considers EPS estimates for the next 12 months. Kinder Morgan’s forward PE ratio is lower than ONEOK and Williams Companies’ ratios. There appears to be some scope for expansion in Kinder Morgan’s forward PE ratio based on its own historical average and peers’ average multiples.

As the above graph shows, Kinder Morgan’s forward PE ratio has been lower than its historical average for more than five quarters. So, the ratio might remain depressed until there’s a catalyst to boost the stock price.

Yield comparison

Kinder Morgan offers an attractive yield of ~5.1%. The yield is close to ONEOK’s yield but slightly lower than Williams Companies’ 5.4% yield. Enterprise Products Partners (EPD) offers a yield of ~6.0%.

Short interest in Kinder Morgan

The short interest in Kinder Morgan fell 10.3% to ~51.0 million shares on April 15 from ~56.8 million shares on March 29. The short interest in Kinder Morgan as a percentage of its float is 2.6%.


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