Yesterday, Barron’s reported on cofounder Richard Kinder’s latest purchase of $13.9 million worth of Kinder Morgan (KMI) stock in August. On August 30, the stock closed at $20.27, 0.64% lower than its previous day’s close. It’s currently trading 5.70% lower than its 52-week high of $21.50 and 38.64% higher than its 52-week low of $14.62. At the end of June, insiders accounted for around 15% of the company’s total ownership.
Kinder Morgan is trading 0.83% lower than its 50-day moving average and 7.76% higher than its 200-day moving average. The stock has been trading below its 50-day moving average since August 1. This trend indicates the increased control the bears have over the company’s share price.
Kinder Morgan is a leading player in the North American Energy Infrastructure segment. The company has around 70,000 miles of a natural gas pipeline across the world. It’s also responsible for moving around 40% of gas consumed in the US. Kinder Morgan is the largest independent transporter of refined products, the largest independent terminal operator, and the largest transporter of CO2 in North America.
The 22 analysts tracking KMI, however, have an average target price of $22.16 on its stock. This target indicates a potential upside of 9.32% over the next 12 months. Since March 1, many prominent brokerage houses, such as JPMorgan Chase, Citigroup, Jefferies, Raymond James, Stifel, and BMO Capital Markets, have downgraded KMI.
On August 21, Kinder Morgan announced the sale of the US portion of its Cochin Pipeline to Pembina Pipeline Corporation for a total consideration of around $1.55 billion. The company also announced the sale of a 70% stake in Kinder Morgan Canada to Pembina Pipeline Corporation. The company plans to deploy part of the funds from the asset and stock sale deals to maintain its long-term targeted net debt-to-EBITDA ratio of 4.5x. Further, Kinder Morgan also plans to utilize some of the funds to purchase attractive assets or buy back its shares at an optimal price.
After the announcement, Wolfe Research upgraded KMI from “underperform” to “peer perform” on August 22. To learn about why debt is a major concern for Kinder Morgan, read Kinder Morgan Expects Lower 2019 EBITDA and Debt Rose in Q1.
Kinder Morgan’s financial performance
Kinder Morgan reported revenue of $3.21 billion, a YoY (year-over-year) fall of 6.24%, in the second quarter. This revenue was $379.13 million lower than the consensus estimate. The company also reported non-generally accepted accounting principles EPS of $0.22, $0.02 lower than the consensus estimate. To learn more, read Why Kinder Morgan Stock Fell After Its Q2 Earnings.
According to the company’s second-quarter earnings call, its CO2 segment proved a drag mainly due to lower crude and NGLs (natural gas liquids) prices. Despite mid-cush basis hedges, Kinder Morgan’s net realized crude oil price was $8 per barrel. The price of NGLs was also only $9 per barrel. The company reported a 2% YoY fall in crude oil production from the Katz and Goldsmith reserves in the Permian Basin.
According to its second-quarter earnings call, Kinder Morgan’s Tall Cotton Field is producing less oil than expected. The company has thus decided to reduce capex in this asset.
Significant growth opportunity
Despite the setbacks, Kinder Morgan is confident in the growth opportunity in the energy industry. According to its investor presentation, developing economies will be the key demand drivers in the industry. India and China are expected to account for 32% and 26% of the total projected incremental demand from 2017 to 2040. The African, Southeast Asian, Latin American, and Rest of World markets should account for 15%, 15%, 10%, and 2% of total incremental demand, respectively.
According to Kinder Morgan’s investor presentation, the US will account for almost half of global oil and natural gas production by 2025. The company expects oil and natural gas production in the US to rise 33% by 2025. It also expects the US to account for 20% of total oil production and 25% of the total gas production in the world by 2025.
According to its second-quarter earnings call, Kinder Morgan is highly optimistic about its growth prospects in the natural gas segment. The company expects to capture growth through the increased utilization of existing infrastructure and the use of new infrastructure.