Analyst Sees Optimism on Kinder Morgan Inc (KMI) into 2018 on Back of Improving G&P Segment

RBC Capital's Elvira Scotto projects 15% in return potential for KMI stock following the 4Q earnings showcase.

Kinder Morgan Inc (NYSE:KMI) just handed out a slight fourth quarter beat as its last print of 2017, and even though one voice on the Street weighs in from the sidelines, the analyst sees good signs for the stock approaching the new year.

In reaction, RBC Capital analyst Elvira Scotto reiterates a Sector Perform rating on KMI stock, but notably, her $22 price target implies a cautiously optimistic 15% upside from current levels. (To watch Scotto’s track record, click here)

For the fourth quarter, the biggest energy infrastructure player in North America posted $1,896 million in adjusted EBITDA, which though came up short of the analyst’s estimate of $1,907 million beat out consensus of $1,856 million. DCF for the quarter hit $11,190 million, trouncing both the analyst’s expectations of $1,140 million as well as the Street’s $1,110 million. The company declared an in-line dividend per share of $0.125 while maintaining expectations for dividend per share of $0.80 in this year.

Following the earnings showcase, the analyst tweaks her estimates for this year and next, taking adjusted EBITDA for 2018 from $7,491 million to $7,487 million and DCF from $4,609 million to $4,590 million. For 2019, the analyst now scales back her former expectations of $7,812 million in adjusted EBITDA to $7,800 million and DCF from $4,887 million to $4,873 million.

Though the KMI team recently set a 2018 outlook, the analyst still anticipates further budget details along with more commentary circling the Trans Mountain Expansion Project come the company’s analyst day next Wednesday.

Cheekily, the analyst adds, “Hey Haynesville, you’re Bakken favor,” cheering the company’s gathering and processing segment, which includes KMI’s natural gas and crude oil storage coupled with transportation operations, as well as marketing, supply and logistics.

“Sequential improvement in G&P,” Scotto highlights, and for this reason, she spotlights “optimism into 2018.” The analyst explains, “KMI’s gathered gas volumes in the Eagle Ford, Bakken and Haynesville shales increased in 4Q17 vs 3Q17 with additional drilling activity driving the Bakken and Haynesville. We see positive read-through for OKE, CEQP, SMLP, ANDX and OMP in the Bakken; ETP, ENBL, WPZ and EPD in the Haynesville; and DCP, WES/WGP, SNMP and TRGP in the Eagle Ford.”

On a last encouraged note, the analyst points out the “new tax law [is] a net positive” for the energy company, concluding, “KMI will take an ~$1.4BN non-cash charge in 4Q17 related to the tax law. However, the reduced corporate income tax rate of 21% and ability for most of KMI’s US businesses to deduct 100% of capex through 2022 are positive. KMI believes the net impact will push out the date KMI becomes a federal tax payer by a year to beyond 2024.”

TipRanks shows a strong bullish analyst camp betting on this energy player, with 4 out of 5 analysts in the last 3 months rating a Buy on Kinder Morgan stock. With a return potential of nearly 19%, the stock’s consensus target price stands at $22.60.

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