Kinder Morgan (NYSE: KMI) recently reported solid fourth-quarter results and issued 2025 guidance. Nevertheless, most notable from the report was the increasing project backlog the corporate was seeing because of this of natural gas demand coming for LNG (liquefied natural gas) exports, power plants, and artificial intelligence (AI).
Let us take a look at the pipeline company’s most up-to-date results and guidance to see if that is an excellent time to purchase the stock.
Certainly one of the most important things to come back out of Kinder Morgan’s latest earnings report was the corporate’s growing project backlog. Its project backlog increased a whopping 60% in comparison with its third quarter, going from $5.1 billion to $8.1 billion. Projects related to natural gas accounted for 89% of its backlog.
In expects the EBITDA multiple on most of its projects (those not related to carbon dioxide enhanced oil recovery) to be 5.8 times. Because of this for each $100 million it spends, it expects to generate an incremental $17.24 million in EBITDA from these projects. Midstream projects are sometimes done between 6x to 8x EBITDA multiples, so it is a very solid expected return on these projects.
Kinder Morgan highlighted three big natural gas projects it has recently secured: South System Expansion 4, Mississippi Crossing, and the Trident Intrastate Pipeline. The corporate said it is rather well positioned for the trends driving natural gas volumes, with it serving 45% of the LNG export demand, 50% of natural gas exports to Mexico, and 45% of the facility demand within the desert Southwest, Texas, and Southeast regions. It also noted that we’re still within the very early innings of AI data centers and the facility needed for them.
It sees natural gas demand within the U.S. rising by 28 billion cubic feet (BCF) a day by 2030. This projection could be very much like the 28.5 BCF a day increase that natural gas producer Antero Resources recently provided. While U.S. natural gas consumption has step by step been increasing, these projections are near doubling recent consumption inside five years, which could be an infinite increase.
Turning to its results, Kinder Morgan’s adjusted earnings per share (EPS) jumped 14% to $0.32. That was just under analyst expectations for EPS of $0.34.
It adjusted EBITDA, meanwhile, rose 7% to $2.06 billion. Its distributable money flow (DCF), which is working money flow minus maintenance capital expenditures (capex), climbed by 8% to $1.26 billion. Its DCF per share rose 10% to $0.57. Adjusted EBITDA and DCF are two of probably the most common metrics used to judge midstream firms.
Kinder Morgan declared a dividend of $0.2875 per share, a 2% increase in comparison with a 12 months ago. Its forward yield is about 3.8%. For the 12 months, it generated free money flow of after dividend payments of $449 million, so the dividend is well covered.
The corporate ended the 12 months with leverage (net debt divided by trailing-12-month adjusted EBITDA) of 4 times. That’s inside the everyday 3 times to 4.5 times range for midstream firms, and its own leverage goal of three.5 times to 4.5 times.
Looking ahead, Kinder Morgan forecasts a 4% increase in adjusted EBITDA to $8.3 billion and a ten% jump in adjusted EPS to $1.27. It’s looking to cut back its leverage to three.8 times by year-end while increasing its dividend by 2% to $1.17 for the 12 months. The guidance doesn’t include its recently announced $640 million Outrigger Energy II acquisition to expand its footprint within the Bakken oil formation. It said the acquisition was being done at a multiple of 8 times 2025 expected EBITDA, which could be about $80 billion if it owned it for the whole 12 months.
Moving forward, Kinder Morgan plans to now spend $2.5 billion a 12 months in growth capex over the following several years, up from a previous budget of $2 billion.
Image source: Getty Images.
Kinder Morgan’s Q4 results and guidance were generally solid, however it is its strong project backlog and expected return on these projects that’s exciting. The industry is expecting huge natural gas demand over the following several years, and Kinder Morgan is well positioned to reap the benefits of these increased volumes. Along with increasing demand within the within the U.S. stemming from AI data centers, there’s also huge demand to export natural gas to Mexico and to ship it overseas as well.
Kinder Morgan has strong ties to the Texas utility market and likewise has pipelines near Abilene, Texas, which might be the primary data center site of the proposed $500 billion Stargate AI data center project. As such, it’s in an excellent spot to be an AI winner, as Texas appears to be at the center of the AI data center buildout given its proximity to low-cost associated gas coming from the Permian basin. While the market was roiled Monday by DeepSeek, a latest Chinese AI player whose model is alleged to be very low-cost to coach, there remains to be much not known in regards to the accuracy of that claim, and I might not see this derailing U.S. AI projects based on speculation.
From a valuation perspective, Kinder Morgan trades at an enterprise value-to-EBITDA ratio of just over 11 times. That is below where midstream firms have traded at previously and is a gorgeous valuation given the expansion opportunities in front of the corporate. As such, Kinder Morgan is a solid stock to think about at current levels.
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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Kinder Morgan. The Motley Idiot has a disclosure policy.