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Kinder Morgan Unveils 2020 Guidance: A Detailed Analysis

Zacks Equity Research

Kinder Morgan Inc. KMI recently provided a glimpse of its financial expectations for 2020.

The midstream energy player projects distributable cash flow (DCF) for 2020 at $5.1 billion, roughly 3% higher than its 2019 DCF forecast. The company expects higher contributions from existing projects, expansion developments, increased tariffs and lower interest rates to back growth in DCF — a key metric for any midstream infrastructure provider.  

Kinder Morgan also reaffirmed its plan to raise annual dividend for 2020 to $1.25 per share, suggesting a year-over-year increment of 25%. The company added that it will be able to fully finance the dividend payments with internally-generated cashflow.

Moreover, the company announced its 2020 capital budget for growth projects and joint venture contributions. Kinder Morgan is planning to spend $2.4 billion in 2020, suggesting a decline from $3.1 billion budget in 2019.   

The midstream infrastructure provider is also laying strong emphasis on strengthening its balance sheet. Kinder Morgan now expects improvement in its net debt-to-adjusted EBITDA ratio for 2019 to 4.4 from the prior projection of 4.5. For 2020, the company projects a further improvement in its net debt-to-adjusted EBITDA ratio to 4.3. The company emphasized that it will utilize the proceeds from the asset divestments to Pembina Pipeline Corporation PBA, likely to close by 2019-end, to lower its debt burden. Importantly, Kinder Morgan added that emphasis to strengthen balance sheet will provide it with flexibility in financials by $1.2 billion, providing rooms for share buybacks and investments for profitable projects.

Despite the rise in DCF forecasts, the company projects a drop in core earnings for 2020. Kinder Morgan expects adjusted EBITDA for 2020 at $7.6 billion, suggesting a decline from 2019’s forecast of $7.8 billion. This reflects that earnings from pipeline projects are under pressure since oil and gas drillers are removing rigs from U.S. shale plays owing to their conservative capital budgets.

Headquartered in Houston, TX, Kinder Morgan is a leading pipeline operator in the United States. Currently, the stock carries a Zacks Rank #3 (Hold). Meanwhile, a couple of better-ranked players in the energy space are Murphy USA Inc MUSA and CNX Resources Corporation CNX. While Murphy USA sports a Zacks Rank #1 (Strong Buy), CNX Resources carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA beat the Zacks Consensus Estimate in three of the prior four quarters.

CNX Resources surpassed the Zacks Consensus Estimate in two of the prior four quarters. It has a positive earnings surprise of 34.8%, on average, for the trailing four quarters.

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CNX Resources Corporation. (CNX) : Free Stock Analysis Report
 
Murphy USA Inc. (MUSA) : Free Stock Analysis Report
 
Pembina Pipeline Corp. (PBA) : Free Stock Analysis Report
 
Kinder Morgan, Inc. (KMI) : Free Stock Analysis Report
 
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