Credit Suisse Upgrades Kinder Morgan (KMI) to Outperform
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Credit Suisse upgraded Kinder Morgan (NYSE: KMI) from Neutral to Outperform with a price target of $26.00 (from $23.00).
Analyst John Edwards commented, "3Q EBITDA beat (~1% vs Street and ~3% vs CS), KMI management is still guiding to 3% below the '16 EBITDA budget and 4% below the DCF budget consistent with last quarter and KMI affirmed that delevering to be 0.2x better than budget (to 5.3x Debt/EBITDA by YE) due to the sale of 50% of SNG to SO (The South Rises) which closed 9/1/16. Management cut another $100mm from growth cap ex, to $2.7B and the project backlog fell $500mm more to $13.0B. We forecast below 5.0x Debt/EBITDA by 2Q18. Chairman Rich Kinder indicated the working assumption is to have excess cash over dividends to be able to cover 50% of normalized cap ex (~$2-$3B) when the balance sheet reached below 5.0x leverage. In response, we are raising the dividend to $0.25/share ($1.00 annualized) beginning with 3Q18 declaration (with ~15% CAGR the next 5 years thereafter). In our blended valuation approach, this removes the drag from the dividend component, prompting us to raise our TP by $3, to $26, and our rating on the shares to Outperform."
Shares of Kinder Morgan closed at $20.71 yesterday.
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