On November 9, Kinder Morgan Inc (NYSE:KMI) announced in a letter of intent that it would partner with TrailStone Group in a Joint Venture to create a Mexican natural gas marketing company. KMI is one of North America’s largest energy infrastructure companies, operating over 80,000 miles of pipelines transmitting crude oil, CO2, and natural gas as well as 180 storage centers containing coal, jet fuel, and other products. TrailStone Group is an international asset-backed company involved in commodities and logistics. TrailStone will manage and operate the Joint Venture, which is set to begin operations in Q1 of next year.
This project will deliver competitively priced natural gas to industrial markets and power generators in Monterrey, Mexico as well as other markets. The venture will offer a “bundled natural gas supply package” to U.S and Mexican producers “that can comprise Henry Hub or Houston Ship Channel-based pricing options as well as swing and storage services.” The new company will also expand its Mier-Moterrey pipeline, running from Texas to Mexico, by Q4 of 2017. Larry Bell, vice president of marketing at KPI, said in a statement, “Our Texas Intrastate system will provide transportation, storage and gas supply services in the United States in support of the JV and benefit from increased utilization of its existing assets.”
In light of this news, analyst Michael Burke of Argus weighed in on the stock, reiterating his Buy rating but lowering his price target to $35 from $50. According to The Fly, he attributes this decrease to investor concern over forecasted reduced dividend growth for next year, as well as uncertainty about how the company will finance the $21.3 billion dollar deal. However, he believes that the company’s plan for a convertible preferred equity offering will adequately finance the project without risking KMI’s credit rating or diluting shares.
According to TipRanks‘ statistics, out of the 7 analysts who have rated KMI in the last 3 months, 5 have given a Buy rating, while 2 remain on the sidelines. The average 12-month price target for the stock is $38.57, marking a 51.55% upside from where shares last closed.