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Kinder Morgan (KMI) Provides Encouraging Guidance for 2018

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Energy infrastructure provider Kinder Morgan, Inc. (KMI - Free Report) recently announced its forecast for 2018. The company expects distributable cash flow (DCF) of $4.57 billion for the year.

The company expects DCF per share to be $2.05 and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $7.5 billion. Both the figures are expected to be higher than the 2017 numbers based on the projects coming online in 2017 and 2018. Kinder Morgan expects to have $500 million in hand, after rewarding stockholders with planned dividend, for share repurchases and investing in high yielding projects. 

In 2018, Kinder Morgan anticipates dividend per common share to rise up to 80 cents, while in 2019 and 2020 the same is expected to rise to $1.00 and $1.25, respectively. The company intends to end the year 2018 with a net debt-to-adjusted EBITDA ratio at 5.1. Also, it has plans to invest around $2.2 billion in various expansion projects.

 

Notably, expenses related to the Gulf Coast Express project, which is yet to be incorporated in the company's backlog, have been included in the company's 2018 budget. The company has no plans to depend on the equity markets in 2018 for discretionary spending.

In December 2017, the company's $2 billion share buyback program will commence as planned. Execution of the program will result in the repurchase of 5% of outstanding shares of the company.

The company generates revenues primarily through its fee-based structure, thus eliminating the effects of change in commodity prices. However, Kinder Morgan's CO2 segment possesses commodity price sensitivity where it uses the process of hedging to reduce price sensitivity. Investors should know that the company expects the price of West Texas Intermediate (WTI) crude oil to be $56.50 per barrel and Henry Hub natural gas price to be $3.00 per one million British thermal units (MMBtu).  

About the Company

TX-based Kinder has the largest network of natural gas pipeline in North America that spreads over almost 70,000 miles. Most importantly, the company’s midstream properties are linked to all the prospective plays in the U.S. that are rich in natural gas.

However, we are concerned about Kinder Morgan’s weak balance sheet. As of Sep 30, 2017, total debt – both short and long-term – was $38.3 billion. The debt capital is higher than the total equity capital of $36.5 billion, which shows the company’s significant exposure to debt. Also, Kinder Morgan has lost 17.3% year to date compared with 2.8% decline of its industry.

Zacks Rank and Stocks to Consider

Kinder Morgan has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector include ConocoPhillips (COP - Free Report) , Northern Oil and Gas, Inc. (NOG - Free Report) and Holly Energy Partners, L.P. . All the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based ConocoPhillips is a major global exploration and production company. The company’s sales for 2017 are expected to increase 24.4% year over year. The company delivered an average positive earnings surprise of 152.3% in the last four quarters.

Minnetonka, MN -based Northern Oil and Gas is an independent energy company. The company’s sales for the fourth quarter of 2017 are expected to increase 51.9% year over year. The company delivered an average positive earnings surprise of 175% in the last four quarters.

Dallas, TX-based Holly Energy is a production pipeline company. The company’s sales for 2017 are expected to increase 10.4% year over year. The company delivered a positive earnings surprise of 57.1% in the third quarter of 2017.

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