Kinder Morgan (KMI)– Should We Be Concerned About Leverage?

Now trading at a price of $17.57, Kinder Morgan has moved 0.2% so far today.

As of July 2023, the company's 50-day average price was $16.77. Kinder Morgan, Inc. operates as an energy infrastructure company in North America. Based in Houston, TX, the large-cap Utilities company has 10,525 full time employees. Kinder Morgan has offered a 6.4% dividend yield over the last 12 months.

Exceptional Profitability Overshadowed by Excessive Leverage:

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $13,209 $11,700 $16,610 $19,200
Gross Margins 57.0% 59.8% 48.1% 40.4%
Operating Margins 29.8% 29.8% 27.3% 21.0%
Net Margins 16.58% 1.02% 10.74% 13.27%
Net Income (MM) $2,190 $119 $1,784 $2,548
Net Interest Expense (MM) -$1,801 -$1,595 -$1,492 -$1,513
Depreciation & Amort. (MM) -$2,411 -$2,164 -$2,135 -$2,186
Earnings Per Share $0.96 $0.05 $0.78 $1.13
EPS Growth n/a -94.79% 1460.0% 44.87%
Diluted Shares (MM) 2,264 2,263 2,266 2,248
Free Cash Flow (MM) $2,478 $2,843 $4,427 $3,346
Capital Expenditures (MM) -$2,270 -$1,707 -$1,281 -$1,621
Net Current Assets (MM) -$36,030 -$36,204 -$34,666 -$34,161
Current Ratio 0.65 0.63 0.66 0.55
Long Term Debt (MM) $31,915 $32,131 $30,674 $28,403
Net Debt / EBITDA 4.65 7.69 5.57 4.46

Kinder Morgan benefits from strong margins with a negative growth trend, growing revenues and decreasing reinvestment in the business, and wider gross margins than its peer group. The company's financial statements show positive EPS growth and consistent free cash flow. However, the firm has a highly leveraged balance sheet.

A Very Low P/E Ratio but Trades Above Its Graham Number:

Kinder Morgan has a trailing twelve month P/E ratio of 14.8, compared to an average of 22.89 for the Utilities sector. Based on its EPS guidance of $1.19, the company has a forward P/E ratio of 14.1. The 4.4% compound average growth rate of Kinder Morgan's historical and projected earnings per share yields a PEG ratio of 3.38. This suggests that these shares are overvalued. Furthermore, Kinder Morgan is likely overvalued compared to the book value of its equity, since its P/B ratio of 1.28 is higher than the sector average of 1.03. The company's shares are currently trading 17.1% above their Graham number.

Kinder Morgan Has an Analyst Consensus of Some Upside Potential:

The 18 analysts following Kinder Morgan have set target prices ranging from $18.0 to $23.0 per share, for an average of $20.27 with a hold rating. As of April 2023, the company is trading -17.3% away from its average target price, indicating that there is an analyst consensus of some upside potential.

Kinder Morgan has an average amount of shares sold short because 2.0% of the company's shares are sold short. Institutions own 64.3% of the company's shares, and the insider ownership rate stands at 12.66%, suggesting a large amount of insider shareholders. The largest shareholder is the Vanguard Group, Inc., whose 8% stake in the company is worth $3,064,402,792.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.