Goldman Sachs Responds to Pushback on Kinder Morgan (KMI) Upgrade
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Rating Summary:
7 Buy, 22 Hold, 1 Sell
Rating Trend: Down
Today's Overall Ratings:
Up: 11 | Down: 13 | New: 18
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Last week Goldman Sachs upgraded Kinder Morgan (NYSE: KMI) to Conviction Buy with a price target of $44. Analyst Theodore Durbin reiterated his bullish stance in a research note Monday in response to pushback from investors.
"Sentiment in KMI has been poor over recent months/quarters, and we found a similar negative reaction to our report. Investors continue to pushback most on (1) growth and (2) financial flexibility. On growth, the market remains skeptical that KMI’s primary MLP, KMP, can hit its stated 5% annual distribution growth target, which would then slow KMI’s stated 8% growth target. Skeptics believe KMP capex and/or returns on capital will decline over time. And bearish investors correctly point out that KMI is not a pure play on Marcellus/Utica infrastructure growth. On financial flexibility, the market remains focused on Kinder’s tight coverage ratio, KMI-level taxes, warrant dilution, and maintenance capex," said Durbin.
"On growth, we acknowledge Kinder is not a pureplay on Appalachia infrastructure, but we believe its announced (~9% of consolidated EBITDA) and potential incremental projects can add meaningfully to cash flow and backlog growth. With gas infrastructure becoming increasingly in focus, we believe Kinder will benefit from growth in Appalachia and across the continent at strong returns. On financial flexibility, we believe Kinder can manage coverage given its highly feebased/hedged cash flow profile. We agree KMI-level taxes and warrant dilution are headwinds, but believe Kinder has sufficient time (3 years) to address these issues. On maintenance capex, we acknowledge Kinder spends a relatively low amount on E&P, however E&P represents only ~15% of cash flows and generates strong returns, and we believe its midstream maintenance is appropriate. We continue to believe shares are attractively valued on an absolute basis and relative to peer C-corps," he added.
For an analyst ratings summary and ratings history on Kinder Morgan click here. For more ratings news on Kinder Morgan click here.
Shares of Kinder Morgan closed at $33.45 yesterday.
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