Kinder Morgan (KMI) stock climbed 0.6 % this evening. According to our metrics, the company seems fairly valued at today's prices. In the below analysis, we will put Kinder Morgan's valuation in the context of its strong growth indicators and mixed market sentiment, which are also strong drivers for share price.
Kinder Morgan, Inc. operates as an energy infrastructure company in North America. The large-cap Utilities company is based in Houston, United States and has 10,525 full time employees.
KMI's P/E Ratio Is Better Than the Sector Average
Compared to the Utilities sector's average of 22.89, Kinder Morgan has a trailing twelve month price to earnings (P/E) ratio of 15.7 and an expected P/E ratio of 14.4. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $1.11 and $1.21 respectively.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Kinder Morgan's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.
Kinder Morgan Is Overvalued in Terms of Expected Growth
Kinder Morgan's PEG ratio is 52.43. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Kinder Morgan's case, it tells us the company is overvalued.
KMI Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Kinder Morgan, the P/B value is 1.27 while the average for the Utilities sector is 1.03.
Investors Stand to Gain from KMI's Cash Flows
Kinder Morgan has strong cash flows. With a coefficient of variability of 12.2% and an average growth rate of -1.3%, the company is effectively turning its revenue into cash. We calculate Kinder Morgan's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a -7.3% rate, versus 1.1% for operating expenses:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-08 | 4,967,000 | -1,615,000 | 6,582,000 | -0.02 |
| 2022-02-07 | 5,708,000 | -875,000 | 6,583,000 | 26.89 |
| 2021-02-05 | 4,550,000 | -638,000 | 5,188,000 | -25.2 |
| 2020-02-12 | 4,748,000 | -2,188,000 | 6,936,000 | n/a |
Kinder Morgan's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Kinder Morgan's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Kinder Morgan's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-08 | 19,200,000 | -9,255,000 | 51.8 | -14.96 |
| 2022-02-07 | 16,610,000 | -6,493,000 | 60.91 | -22.16 |
| 2021-02-05 | 11,700,000 | -2,545,000 | 78.25 | 3.92 |
| 2020-02-12 | 13,209,000 | -3,263,000 | 75.3 | n/a |
Kinder Morgan's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2023-02-08 | 19,200,000 | -5,912,000 | 21.01 | -23.12 |
| 2022-02-07 | 16,610,000 | -5,577,000 | 27.33 | -8.44 |
| 2021-02-05 | 11,700,000 | -5,663,000 | 29.85 | 0.37 |
| 2020-02-12 | 13,209,000 | -6,018,000 | 29.74 | n/a |
Kinder Morgan's cost of revenue is growing at a rate of -29.8% in contrast to 0.4% for operating expenses. Sales revenues, on the other hand, have experienced a 9.8% growth rate. As a result, the average gross margins growth is -8.9 and the average operating margins growth rate is -8.3, with coefficients of variability of 18.7% and 15.4% respectively.
Kinder Morgan Benefits From Positive Market Signals
The market sentiment regarding Kinder Morgan is overwhelmingly positive. The stock has an average rating of hold and target prices ranging from $23.0 to $18.0. KMI is trading -13.98% away from its target price of $20.32. 2.1% of the company's shares are tied to short positions, and 64.4% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-03-31 | Vanguard Group Inc | 8% | 174,361,512 | $3,047,839,149 |
| 2023-03-31 | Blackrock Inc. | 7% | 158,106,227 | $2,763,696,775 |
| 2023-03-31 | State Street Corporation | 6% | 137,873,544 | $2,410,029,486 |
| 2023-03-31 | Bank of America Corporation | 3% | 62,349,245 | $1,089,864,774 |
| 2023-03-31 | Geode Capital Management, LLC | 2% | 37,254,585 | $651,210,128 |
| 2023-03-31 | Price (T.Rowe) Associates Inc | 2% | 36,729,560 | $642,032,691 |
| 2023-03-31 | JP Morgan Chase & Company | 1% | 29,798,897 | $520,884,705 |
| 2023-03-31 | Charles Schwab Investment Management, Inc. | 1% | 29,548,563 | $516,508,867 |
| 2023-03-31 | Orbis Allan Gray Ltd | 1% | 26,311,549 | $459,925,864 |
| 2023-03-31 | Northern Trust Corporation | 1% | 23,047,047 | $402,862,371 |
