Kinder Morgan (KMI) Dividend Cut Creates Opportunity to Buy High-Quality Names - Jefferies

Jefferies analyst, Christopher Sighinolfi, commented on Kinder Morgan (NYSE: KMI) revised capital plan before this morning's call. Yesterday, KMI cut its dividend 75% to 12.5¢/sh at the time it announced its capital outlook.

The overall 2016 capital plan:

1) 75% cut in its quarterly dividend to 12.5¢/sh, from 51¢/sh

2) net debt/ EBITDA ratio of ~5.5x for 2016

3) DCF of slightly over $5B in 2016

4) ability to now fund the required equity contribution of its capital spending plans & substantial 2016 debt requirements with internally generated cash flow and its ability to remain out of the equity market through 2018

On market reaction, the analyst sees selling as a opportunity to buy high quality names in the space. "While a dividend cut for the ‘bellwether’ US midstream name is likely to incite additional sector selling, we believe such selling may create the opportunity to buy high-quality cash flow stories at discounted valuations," Sighinolfi said. "As a reminder, our top MLP picks (alphabetical) are APU, EPD, SUN, and WPZ and our favorite C Corp. names are CPGX & NFG."

Earlier this week, Jefferies formally amended their valuation methodology to incorporate an average of SOTP, P/ TBV and P/E approaches, rather than a dividend or yield-based view, given expectation of a dividend cut. The average of these approaches yields a new PT of $15; however, there is LT upside as KMI progresses toward the reinstatement of a fully-funded and meaningful dividend in 2018+.

No change to Hold rating.

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 $15.72 yesterday.

You May Also Be Interested In

• Jefferies Downgrades Enphase Energy (ENPH) to Hold, 'Still Muddling Through'
• Summit Insights Downgrades Silicon Labs (SLAB) to Hold, 'expect its stock to be an inline performer'
• BofA Securities Starts GE Vernova (GEV) at Neutral, 'Multiyear turnaround amid positive demand backdrop'