Valens Equity Weekly Insights - 2024 05 07
Kinder Morgan (KMI) is the biggest natural gas pipeline company in the U.S. Its dominant position has allowed it to have stable profitability the last several years even when natural gas prices and volumes were low. Now that the natural gas market is improving thanks to better compression technology and higher demand from Europe, KinderMorgan can start making more money on its contracts. Uniform Accounting highlights that the market is not pricing in a profitability inflection for the company, signaling the potential for equity upside.
Kinder Morgan has a dominant position in the U.S. natural gas pipeline market. More than 40% of all volumes travel through its pipelines, and more than 50% set for export does. While the company's returns have been stable thanks to its dominant position, it has the potential for Uniform ROA to improve from the 6%-7% levels it has seen recently to 11% levels that it saw during the last strong natural gas cycle. As the company sees more volumes pass through its pipelines, it should be able to beat market expectations. • Kinder Morgan's management is closely aligned to focus on margins and asset efficiency, which should drive profitability expansion.
Management confidence during its first quarter earnings call about increased demand for natural gas from AI and data centers suggest future growth and ROA expansion
Kinder Morgan is an energy infrastructure company. The company's segments are: Natural Gas Pipelines, which includes the ownership and operation of, among others, main interstate and intrastate natural gas pipeline and storage systems; Products Pipelines, which includes the refined petroleum products, crude oil and condensate pipelines; Terminals, which includes the ownership and/or operation of, among others, liquids and bulk terminal facilities; and carbon dioxide (CO2), which includes the production, transportation and marketing of CO2, ownership interests in and/or operation of oil fields and gasoline processing plants in West Texas.
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