Kinder Morgan has put up a powerful run over the past few years, and the stock recently closed at US$33.87, which naturally raises a sharper question for holders and would be buyers. Are today’s cash flows, and the ones investors expect Kinder Morgan to generate over time, enough to justify that price tag?
-
The share price has returned 157.7% over the past 5 years, so a lot of future cash generation is already embedded in the story investors are paying for.
-
A record US$14.4b project backlog, including US$4.7b of newly approved natural gas pipelines, can reshape the timing and scale of Kinder Morgan’s future cash flows as those assets are built and start operating.
-
If you’d rather focus on earnings, this one’s for you. See why Kinder Morgan’s 21.0x P/E tells a different valuation story.
The issue now is whether Kinder Morgan’s current share price lines up with the intrinsic value suggested by its cash flows using a Discounted Cash Flow (DCF) lens.
If you want to test this same cash flow valuation question beyond Kinder Morgan, it helps to line up a few comparison points using 30 high quality undervalued stocks.
Is Kinder Morgan Still Cheap on Cash Flow?
The Discounted Cash Flow (DCF) model here takes Kinder Morgan’s future free cash generation and asks what that stream is worth in today’s dollars. Latest twelve month free cash flow sits at about $2.3b, and the projection path used in the model assumes those cash flows are growing rather than shrinking over the coming decade.
On that set of inputs, the DCF output sits meaningfully above Kinder Morgan’s current share price of $33.87. This implies the market is putting a lower value on those future cash flows than the model does. Because the $14.4b project backlog includes large pipelines scheduled to come online around 2030, the timing and risk of those cash flows help explain why investors may still hesitate to fully close that gap. 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?
Simply Wall St Narratives pick up where the Kinder Morgan valuation puzzle leaves off and spell out which paths for Kinder Morgan’s growth, margins and earnings would need to play out for the stock to be worth materially more or less than it trades for today on the market. Each storyline links its number to a concrete view of how Kinder Morgan’s future expansion, profitability and risk profile could evolve, which gives you something specific to revisit as fresh information comes through on the Community page.
One of the top community narratives on Kinder Morgan: 8% undervalued
Analysts expect Kinder Morgan to keep converting its roughly $10b sanctioned growth backlog and shadow opportunity set tied to natural gas…
Discover why this Narrative puts Kinder Morgan at 8% undervalued.
One more Kinder Morgan angle you should not skip
Cash flow and backlog only tell part of the Kinder Morgan story, because the research also flags specific risk checks that deserve a look before you lean too hard on the valuation work. Take a closer look at 2 warning signs 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
Source: finance.yahoo.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
