The upward revision to Kinder Morgan’s earnings outlook could attract attention as an investment idea, underpinned by the long-term contracts supporting its pipelines and terminals and by its backlog.
Kinder Morgan’s earnings outlook has been revised upward, which is said to reinforce the view that its existing pipelines and terminals are the main sources of revenue. The current backlog is approximately US$9.6 billion, and its execution going forward is expected to support the company’s growth. As a possible point of differentiation, the revision is viewed as consistent with the long-term positive factors that investors are watching.
The largest business risks relate to obtaining permits, cost control and customer commitments for business opportunities worth approximately US$10 billion. Net debt to adjusted EBITDA is said to be approximately 3.6x, and it has been pointed out that disciplined capital allocation will be important if demand deteriorates.
Analyst forecasts call for revenue of US$20.4 billion and earnings of US$3.8 billion by 2029, implying annual revenue growth of 4.3% and an increase of approximately US$400 million in earnings from the current US$3.4 billion. These figures are consistent with expectations for long-term EBITDA growth.
The news flow highlights execution risks, including the fact that current interest payments are not sufficiently covered by earnings and that free cash flow coverage of the dividend is tight. Delays to or reduced profitability from large-scale natural gas projects could make it more difficult to balance growth targets and shareholder returns.