Houston, Tex.,-based energy infrastructure company Kinder Morgan, Inc. (KMI) specializes in owning and controlling oil and gas pipelines and terminals in North America. The company owns and operates approximately 83,000 miles of pipelines and 144 terminals. So far this year, the stock has gained 27.1%, driven primarily by higher contributions from all three of its business segments in the second quarter of 2021 relative to the second quarter of 2020. Also, greater demand for natural gas transportation and storage contracts in Texas has helped the company generate robust sales in the last reported quarter.

However, its stock is down 4% over the past month. This can be attributed primarily  to  volatility in oil prices as the Organization of the Petroleum Exporting Countries and other producers, including Russia—collectively known as OPEC+—reached an agreement to boost oil supply to cool oil prices and meet  rising demand. 

Although KMI’s diversified portfolio and its plans to acquire a leading supplier of liquefied natural gas in the Midwest should help it stand out in the energy market, concerns related to the spread of the COVID-19 Delta variant  and its potential reduce energy demand could cause KMI’s shares to retreat in the near term.

Here is what we think could influence KMI’s performance in the coming months:

Strategic Acquisitions

On July 16, KMI agreed to purchase renewable natural gas developer and supplier Kinetrex Energy from an affiliate of Parallel49 Equity. The $310 million acquisition is expected to close in the third quarter of 2021. Kinetrex’s solid business model and rapidly growing footprint should help KMI capitalize on the RNG market tailwinds and deliver attractive returns.

Also this month, KMI closed on its acquisition of Stagecoach Gas Services LLC’s assets, which include four natural gas storage facilities with a network of FERC-regulated natural gas transportation pipelines. The acquisition will boost KMI’s portfolio of natural gas assets and should help it to cater  to the needs of its customers in the Northeast. 

Uncertain Outlook

With many countries reporting an increase in coronavirus cases as the Delta variant continues to spread rapidly, renewed restrictions and lockdown measures could lead to a slowdown in oil demand. Although oil prices have been steady and global oil markets should continue to experience a supply deficit despite OPEC+’s decision to raise output through the rest of the year, the threat of resurging COVID-19 cases could potentially limit  oil demand. This could add to investors’ concerns surrounding the energy sector.

Mixed Analyst Estimates

Analysts expect KMI’s revenues to increase 3.1% next quarter (ending September 2021) and 20.9% in 2021. But its revenue is estimated to decline 11.5% year-over-year to $12.51 billion in 2022. The company’s EPS is expected to decline 4.8% year-over-year to $0.20 next quarter and 23.3% from its year-ago value to $0.92 next year. The Street expects KMI’s EPS to rise 36.4% year-over-year to $1.20 in the current year. KMI has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters.

Mixed Financials

KMI’s revenues increased 23% year-over-year to $3.15 billion in the second quarter, ended June 30, 2021. Its adjusted EBITDA increased 7% year-over-year to $1.67 billion. But the company’s total operating expense for the quarter totaled $3.91 billion, representing a 37.7% increase  from its  year-ago value. Furthermore,  its operating loss came in at $764 million, up 170.9% year-over-year. In addition, KMI’s net loss stood at $757 million, while its loss per share rose 21% from the prior-year quarter to $0.34.

Consensus Price Target Indicates Marginal Upside

Of the 21 Wall Street analysts that provided ratings for the stock, six rated it Buy, and 14 rated it Hold. The $18.29 consensus price target represents a 2.6% potential upside from yesterday’s $17.83 closing price.

POWR Ratings Reflect Uncertainty

KMI has an overall C rating, which translates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight different categories. KMI has a C grade for Quality. The stock’s 0.2% asset turnover ratio, which is 36.7% lower than the 0.3% industry average, is in sync with this grade.

Also,  the company has a C Stability grade, which is in sync with its relatively high 1.13 beta. In terms of Momentum Grade, KMI has a C. The stock’s price return over the past month is consistent with the grade.

In addition to the grades we’ve highlighted, one can check out additional KMI ratings for Growth, Value, and Sentiment here. KMI is ranked #49 of 93 stocks in the C-rated Energy – Oil & Gas industry.

Click here to view the top-rated stocks in the Energy – Oil & Gas industry.

Bottom Line

While KMI’s strategic business acquisitions and diversified natural gas infrastructure should allow it to benefit from the growing global natural gas demand, fears surrounding the spread of the Delta variant of the coronavirus in several countries, which could cloud global energy demand, make the stock’s prospects uncertain. So, we think investors should wait for the situation to stabilize before investing in the stock.

KMI shares fell $0.03 (-0.17%) in premarket trading Tuesday. Year-to-date, KMI has gained 34.96%, versus a 18.53% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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