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Why Hold Strategy is Apt for Kinder Morgan (KMI) Stock Now

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Kinder Morgan, Inc. (KMI - Free Report) is a leading midstream infrastructure provider in North America. Notably, the company has witnessed positive earnings estimate revisions for 2019 and 2020 in the past 30 days.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).

Factors Favoring the Stock

The company has the largest natural gas transportation network in North America that spreads across roughly 70,000 miles. Notably, the network connects all the key natural gas-rich plays in the United States with the major markets. Kinder Morgan’s transportation networks are also responsible for carrying 40% of the natural gas that is being consumed in America.  

Kinder Morgan’s midstream assets also comprise refined product pipelines that spread across roughly 6,900 miles. Additionally, the company operates 157 terminals.

From its extensive pipeline networks, the company generates strong fee-based revenues. This also reflects Kinder Morgan’s stable business model.

The midstream energy player projects distributable cash flow (DCF) for 2020 to be $5.1 billion, roughly 3% higher than its 2019 DCF forecast. The company expects higher contributions from existing projects, expansion developments, increased tariffs and lower interest rates to back growth in DCF, a key metric for any midstream infrastructure provider. 

Kinder Morgan also reaffirmed its plan to raise the annual dividend for 2020 to $1.25 per share, suggesting a year-over-year increment of 25%. The company added that it will be able to fully finance the dividend payments with internally-generated cash flow.

Factors Deterring the Stock

The company’s balance sheet has significant debt exposure as compared to the composite stocks belonging to the industry.

Moreover, following the divestment of the Trans Mountain pipeline, the project backlog of the midstream energy company has plunged to $4.1 billion from $22 billion in 2015-mid. This is likely to dent the company’s future cash flows.

Stocks to Consider

Some better-ranked players in the energy space are Murphy USA Inc (MUSA - Free Report) , Sasol Limited (SSL - Free Report) and CNX Resources Corporation (CNX - Free Report) . While Murphy USA and Sasol sport a Zacks Rank #1 (Strong Buy), CNX Resources carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA beat the Zacks Consensus Estimate in three of the prior four quarters.

For fiscal 2020, Sasol is likely to post earnings growth of 30%.

CNX Resources surpassed the Zacks Consensus Estimate in two of the prior four quarters. It has a positive earnings surprise of 34.8%, on average, for the trailing four quarters.

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