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Here's Why Hold Strategy is Apt for Kinder Morgan (KMI) Now
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Kinder Morgan, Inc. (KMI - Free Report) has seen upward earnings estimate revisions for 2022 in the past 30 days.
The stock, currently carrying a Zacks Rank #3 (Hold), has gained 13.3% in the past year compared with 9.8% growth of the composite stocks belonging to the industry.
Image Source: Zacks Investment Research
What’s Favoring the Stock?
Being a leading North America midstream energy player, Kinder Morgan has the continent’s largest natural gas transportation network. The company’s natural gas pipeline assets, spreading roughly 83,000 miles, are responsible for transporting 40% of natural gas consumption and export volumes in the United States.
The company generates stable fee-based revenues from its vast network of midstream infrastructure. KMI’s business model is relatively less exposed to commodity price volatility than upstream and downstream companies. It generates significant cash flow from fees charged for leveraging its midstream properties.
For 2023, the midstream player expects to generate earnings of $1.12 per share. KMI anticipates adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $7.7 billion for 2023, an increase from the $7.5 billion projected for 2022. It expects a total segmental EBDA of $8.2 billion, up 5% from the 2022 forecast.
To strengthen the balance sheet, KMI plans to end 2023 with a net debt to adjusted EBITDA of 4 times. With this plan, the company is expecting the ratio for 2023 to be lower than its long-term target of 4.5 times. This will give it significant potential to opportunistically repurchase shares or make additional investments.
Kinder Morgan plans to invest $2.1 billion in expansion projects, joint ventures or discretionary capital expenditures, of which 80% will be allocated to low-carbon projects. The company expects higher adjusted core earnings for 2023 as it banks on the higher demand for transporting crude oil, gas liquids and carbon dioxide.
Risks
Kinder Morgan’s project backlogs have dropped significantly to only $2.7 billion as of Sep 30, 2022, from the high of $22 billion in mid-2015. The company’s asset base is expected to witness lower volumes due to the volatile energy markets. The significant drop in project backlog is likely to hurt its bottom line.
Helmerich & Payne Inc. (HP - Free Report) is a major land and offshore drilling contractor in the western hemisphere, having the youngest and most efficient drilling fleet. HP’s fiscal third-quarter 2022 adjusted profit of 27 cents per share beat the Zacks Consensus Estimate of 5 cents.
Helmerich & Payne is expected to see an earnings surge of 277.8% in 2022. HP boasts a strong balance sheet, carrying $542.3 million in long-term debt. The company’s debt-to-capitalization stands at just 16.6% compared with many of its peers that are hugely burdened with debts.
Patterson-UTI Energy (PTEN - Free Report) is one of the largest North America land drilling contractors, having a large, high-quality fleet of drilling rigs. PTEN’s third-quarter 2022 adjusted net profit of 28 cents per share beat the Zacks Consensus Estimate of 19 cents.
Patterson-UTI is expected to see an earnings surge of 128.5% in 2022. PTEN doubled its quarterly cash dividend to 8 cents per share from the previous 4-cent payout. The dividend will be paid out on Dec 15, 2022, to shareholders of record as of Dec 1, 2022. PTEN also increased its share repurchase authorization to $300 million.
Halliburton Company (HAL - Free Report) is one of the largest oilfield service providers in the world. HAL’s third-quarter 2022 adjusted net income per share of 60 cents surpassed the Zacks Consensus Estimate of 56 cents.
HAL is expected to see an earnings surge of 91.7% in 2022. With controlled capital spending and strong demand for its products/services, Halliburton expects to generate strong free cash flows going forward. Nevertheless, we are being conservative with our projections and provide a margin of safety due to the unpredictability of commodity prices. We expect the free cash flow to be more than $1.1 billion in 2022, jumping to $1.9 billion in 2023.
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Here's Why Hold Strategy is Apt for Kinder Morgan (KMI) Now
Kinder Morgan, Inc. (KMI - Free Report) has seen upward earnings estimate revisions for 2022 in the past 30 days.
The stock, currently carrying a Zacks Rank #3 (Hold), has gained 13.3% in the past year compared with 9.8% growth of the composite stocks belonging to the industry.
Image Source: Zacks Investment Research
What’s Favoring the Stock?
Being a leading North America midstream energy player, Kinder Morgan has the continent’s largest natural gas transportation network. The company’s natural gas pipeline assets, spreading roughly 83,000 miles, are responsible for transporting 40% of natural gas consumption and export volumes in the United States.
The company generates stable fee-based revenues from its vast network of midstream infrastructure. KMI’s business model is relatively less exposed to commodity price volatility than upstream and downstream companies. It generates significant cash flow from fees charged for leveraging its midstream properties.
For 2023, the midstream player expects to generate earnings of $1.12 per share. KMI anticipates adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $7.7 billion for 2023, an increase from the $7.5 billion projected for 2022. It expects a total segmental EBDA of $8.2 billion, up 5% from the 2022 forecast.
To strengthen the balance sheet, KMI plans to end 2023 with a net debt to adjusted EBITDA of 4 times. With this plan, the company is expecting the ratio for 2023 to be lower than its long-term target of 4.5 times. This will give it significant potential to opportunistically repurchase shares or make additional investments.
Kinder Morgan plans to invest $2.1 billion in expansion projects, joint ventures or discretionary capital expenditures, of which 80% will be allocated to low-carbon projects. The company expects higher adjusted core earnings for 2023 as it banks on the higher demand for transporting crude oil, gas liquids and carbon dioxide.
Risks
Kinder Morgan’s project backlogs have dropped significantly to only $2.7 billion as of Sep 30, 2022, from the high of $22 billion in mid-2015. The company’s asset base is expected to witness lower volumes due to the volatile energy markets. The significant drop in project backlog is likely to hurt its bottom line.
Stocks to Consider
Investors interested in the energy sector might look at the following companies that presently flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Helmerich & Payne Inc. (HP - Free Report) is a major land and offshore drilling contractor in the western hemisphere, having the youngest and most efficient drilling fleet. HP’s fiscal third-quarter 2022 adjusted profit of 27 cents per share beat the Zacks Consensus Estimate of 5 cents.
Helmerich & Payne is expected to see an earnings surge of 277.8% in 2022. HP boasts a strong balance sheet, carrying $542.3 million in long-term debt. The company’s debt-to-capitalization stands at just 16.6% compared with many of its peers that are hugely burdened with debts.
Patterson-UTI Energy (PTEN - Free Report) is one of the largest North America land drilling contractors, having a large, high-quality fleet of drilling rigs. PTEN’s third-quarter 2022 adjusted net profit of 28 cents per share beat the Zacks Consensus Estimate of 19 cents.
Patterson-UTI is expected to see an earnings surge of 128.5% in 2022. PTEN doubled its quarterly cash dividend to 8 cents per share from the previous 4-cent payout. The dividend will be paid out on Dec 15, 2022, to shareholders of record as of Dec 1, 2022. PTEN also increased its share repurchase authorization to $300 million.
Halliburton Company (HAL - Free Report) is one of the largest oilfield service providers in the world. HAL’s third-quarter 2022 adjusted net income per share of 60 cents surpassed the Zacks Consensus Estimate of 56 cents.
HAL is expected to see an earnings surge of 91.7% in 2022. With controlled capital spending and strong demand for its products/services, Halliburton expects to generate strong free cash flows going forward. Nevertheless, we are being conservative with our projections and provide a margin of safety due to the unpredictability of commodity prices. We expect the free cash flow to be more than $1.1 billion in 2022, jumping to $1.9 billion in 2023.