Kinder Morgan has had an impressive run over the past six months as its shares have beaten the S&P 500 by 13.4%. The stock now trades at $33.65, marking a 24.7% gain. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy KMI? Or is this a case of a company fueled by heightened investor enthusiasm? Find out in our full research report, it’s free.
Why Does Kinder Morgan Spark Debate?
Operating what amounts to the toll roads of the energy industry, Kinder Morgan (NYSE: KMI) transports natural gas, refined petroleum products, and crude oil through its pipeline network across North America.
Two Positive Attributes:
1. Economies of Scale Give It Negotiating Leverage with Suppliers
The size of the revenue base is a way to assess topline, and it tells an investor whether an Energy producer has crossed the line between being a more vulnerable commodity taker and a durable operating platform. Scaled businesses tend to produce and generate revenue from many wells, pads, takeaway routes, and geographies, not just a single field or drilling program.
Kinder Morgan’s $17.53 billion of revenue in the last year is top-tier for the industry, suggesting the company has hit a level of diversification where investors can sleep easy at night.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Kinder Morgan has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the energy upstream and integrated energy sector, averaging 20.4% over the last five years.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Cyclical industries such as Energy can make mediocre companies look great for a time, but a long-term view reveals which businesses can actually withstand and adapt to changing conditions. Over the last five years, Kinder Morgan grew its sales at a sluggish 4.9% compounded annual growth rate. This wasn’t a great result compared to the rest of the energy upstream and integrated energy sector, but there are still things to like about Kinder Morgan.
Final Judgment
Kinder Morgan has huge potential even though it has some open questions, and with its shares topping the market in recent months, the stock trades at 22.7× forward P/E (or $33.65 per share). Is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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