Kinder Morgan has delivered a powerful run over the past few years, so the obvious question now is whether the current share price lines up with the cash the business is expected to generate. With the stock recently closing at US$34.20, investors are increasingly asking how that market value stacks up against the pipeline operator’s long term cash flow profile.
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Over the past 5 years the Kinder Morgan share price has returned 153.6%, which puts a lot of weight on whether the underlying cash flows can carry that kind of re-rating.
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The business model is built on long term energy infrastructure assets that tend to convert a high share of revenue into steady cash, which can support a structured approach to valuing Kinder Morgan through its future cash generation rather than short term trading moves.
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Prefer to judge Kinder Morgan on earnings? See why Kinder Morgan’s 22.1x P/E tells a different valuation story.
The stock’s next move may depend on whether Kinder Morgan’s current price is fully justified by the cash flows implied by its intrinsic value estimate.
If you are weighing Kinder Morgan against other opportunities that also focus on cash generation, a targeted screen of 33 high quality undervalued stocks can give you another useful starting list for research.
Is Kinder Morgan Still Cheap on Cash Flow?
The Discounted Cash Flow (DCF) model here focuses on the cash Kinder Morgan can return to shareholders over time, adjusted back to today’s dollars. On the latest twelve month numbers, the group produced roughly $2.27b in free cash flow, which sets a sizeable base for the long range projections used in the model.
Analyst and model estimates indicate that Kinder Morgan’s free cash flow is expected to grow over the coming decade, with forecast annual figures in the mid single digit billions of dollars by 2030. When those future streams are discounted and compared with the current share price of $34.20, the DCF output indicates that Kinder Morgan’s estimated intrinsic value sits substantially above where the equity trades today. Find out what Kinder Morgan could be worth using our Discounted Cash Flow (DCF) estimate.
The Kinder Morgan Narrative: What Would Justify Today’s Price?
Kinder Morgan’s valuation puzzle raises a natural follow up question for investors: what specific future path would need to play out for the current price to look too high or too low? Simply Wall St Narratives on Kinder Morgan set out those alternative paths in plain language, and each one links its number to a clear view on how Kinder Morgan’s growth, profitability and key risks could evolve, giving you something concrete to revisit as fresh data arrives on the Community page.
One of the top community narratives on Kinder Morgan: roughly fairly valued
“The main factor that has to go right is that Kinder Morgan continues to secure long-term, largely take or pay contracts with creditworthy power, LNG and industrial customers…”
Discover why this Narrative puts Kinder Morgan at roughly fairly valued.
One more piece of the Kinder Morgan story investors should see
Before getting comfortable with Kinder Morgan on the numbers alone, it is worth checking the specific risk checks that have triggered on this business and weighing what they might mean for your thesis. Take a closer look at 2 warning signs (1 major) before settling on a valuation.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include KMI.
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Source: finance.yahoo.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
