Kinder Morgan Is Well Positioned For The Rebound
Kinder Morgan (NYSE:KMI) is very well-positioned for the coming rebound and a great example of why energy infrastructure is more valuable than energy, at least to an investor. While the company’s performance is tied in small part to the price of energy, specifically natural gas and petroleum liquids, it is not dependent on it. The company earns fees for storage and transport irrespective of the price of the underlying commodity, the more important factor is volume. The more volume of gas the company is able to store and transport the more fees it can earn.
Kinder Morgan reported a 6% sequential increase in volume for the fiscal and calendar 4th quarter, not a big jump but a nice precursor to what is to come. With vaccines working their way through the populace and people ready to get back to “life as usual” the outlook for energy demand is at least stable if not robust. What this means for dividend and income investors is a safe 6.75% yield that comes with a positive outlook for growth. In fact, we know already the company will increase the payout by 3% in the next declaration. The real question is how much increase can we expect at the end of fiscal 2021?
Kinder Morgan Beats And Raises
Kinder Morgan saw its revenue decline in 2020 but that wasn’t really a surprise. The company was in a long-term revenue decline due to overcapicity within the system that was only prolonged by the pandemic. Now, nearly a year into it, natural gas demand is coming back but still down on a YOY basis. The company reported $3.12 billion in net consolidated revenue or down 6.9%. The good news is that revenue beat the consensus by 200 basis points and is expected to continue rising on a sequential basis over the next four quarters. On a sequential basis, the 6% increase in volume drove a near 7% increase in revenue.
Moving down, the company reported $0.27 in GAAP earnings or $0.03 better than the consensus. More importantly, the company’s DCF (distributable cash flow) came in at $0.55 or down $0.04 from last year but well above the distribution payout level. The surplus in DCF is due in part to the company’s operations and in part to cost-saving and reduced capital expenditures.
Looking forward, the Kinder Morgan execs are expecting a strong 2021. They are guiding EPS in the range of $0.92 per share and DCF of $4.4 billion or $1.95 per share. That’s more than $1.2 billion more than the current distribution and supports the board’s decision to increase the payout again as planned. Kinder Morgan has been increasing for the last 3 years and indicated a 3% increase would come with the next declaration. In addition, Kinder Morgan is expecting to use some of the DCF to buy back shares in the amount of $450 million.
The Technical Outlook: Kinder Morgan Is Ready To Move Higher
Shares of KMI popped after the Q4 release and guidance but were not able to hold the gains. An EIA inventory report issued later in the day sapped strength from the entire energy complex but the move should be short-lived. Price action may remain under pressure in the near-term but, longer-term, KMI is ready to move higher within the range if not break out to new highs. Support is likely at the short-term EMA. If it is confirmed by price action a move up to retest the $16 level is likely. A move above $16 will likely continue on up to $18. If the price action does not confirm support at the EMA a move down to $14 or lower is possible. In either case, there is still a 6.75% yield to keep investors happy.
