Kinder Morgan has exhibited a nice resurgence as of late, with financial performance coming in strong year-over-year.
The company is slated to perform well for the whole of 2021, and very little risk exists for it.
Shares are attractively-priced, even if we take one-time benefits into consideration.
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todamo/iStock Editorial via Getty Images One of the largest oil, natural gas, and natural gas liquids and products pipeline/midstream services operator in the US is a company called Kinder Morgan ( KMI ). Although the oil and gas space has been exposed as being a volatile one in recent years, the companies that operate in the pipeline and midstream services category are known for generating stable, consistent cash flows. At the end of the day, Kinder Morgan is about the cheapest prospect in its space, but it is trading cheap on an absolute basis. Add in the stability in cash flows the company offers, even during some of the toughest of times, and it surely is a difficult prospect to pass up. If anything, it should be considered an attractive opportunity for long-term investors who are interested in capturing some yield in the process. The picture remains strong
When it comes to the transportation of the things like oil and natural gas, few companies can boast the same size that Kinder Morgan does. According to management, the company owns a natural gas transmission network totaling around 70,000 miles of natural gas pipelines. It has 700 bcf (billion cubic feet) of working storage capacity and about 1,200 miles of natural gas liquids pipelines. The company also has 6,800 miles of refined products pipelines and 3,100 miles of crude pipelines. Add in the 144 terminals, 16 Jones Act vessels, and 1,500 miles of CO2 pipelines in its portfolio, and Kinder Morgan truly is an industry giant. As you might expect, the bulk of its operations involve natural gas. 62% of its business, for instance, comes from natural gas transmission. Another 16% comes from products while 15% comes from its terminals business. The remaining 7% comes from CO2. This is not the first time that I have written about Kinder Morgan. In early September of this year, for instance, I wrote about the company in an article where I called it a strong value prospect. Since then, the company has generated performance that has marginally outperformed the market, rising by 5.8% if we include the distributions. That compares to the 3.6% return achieved by the S&P 500 over the same period of time. While some of this upside may have been driven by greater enthusiasm surrounding the energy space, the more likely explanation involves the fact that recent financial performance has been robust.
In its third quarter this year, the only quarter for which we didn’t have information when I last wrote about the company, the business generated revenue of $3.82 billion. This represents an increase of 31% over the $2.92 billion generated at the same time a year earlier. Admittedly, revenue doesn’t mean too much for a company like this. After all, its operations center around capturing some margin from the products that it transmits or processes. Even so, this rise in revenue corresponded with mixed, but generally robust, financial performance.
As an example, we need only look at operating cash flow. During the quarter, operating cash flow totaled $1.13 billion. That represents an increase over the $1.05 billion generated the same time a year earlier. Of course, there are other profitability metrics that we should look at. Though less important for a company of this nature, the company did see net income climb from $455 million in the third quarter of 2020 to $495 million in the same quarter of this year. Not every metric showed year over year growth, however. Distributable cash flow, more commonly known as DCF, dropped modestly, declining from $1.09 billion to $1.01 billion. And adjusted EBITDA declined from $1.71 billion to $1.66 billion.
Despite these mixed results on the bottom line, the year-to-date performance for the company for all of these metrics has been positive. I already cited the operating cash flow figure, so I will refrain from doing so again. But the company went from generating a net loss of $488 million in the first nine months of 2020 to generating a net profit of $1.15 billion. DCF jumped from $3.35 billion to […]