About Kinder Morgan
During a long stretch of the COVID-19 pandemic, I lived in the energy capital of the world, Houston, Texas.
Personally, I loved living down there. Aside from making a few friends, having an internship and being roughly an hour and a half away from Galveston, Texas, it’s where MacroHint was first started a little over a year ago.
Before drilling more into the energy culture down in Houston (pun intended), our team at MacroHint wants to simply thank all of our subscribers, viewers and content partners. We’re currently approaching 4 million viewers along with over 200,000 subscribers.
If not for you, there wouldn’t be much of a reason to continue producing content. We also frankly wouldn’t likely have been as motivated to produce as much new content and learn more about the market as a whole.
When you learn, we do too.
There’s not much else we can say other than thank you.
We are thrilled for what the future holds and we are grateful for the opportunity to continue providing relevant, concise and valuable information regarding the stock market and global economy.
Now onto Kinder Morgan!
Although Houston is cool because of the aforementioned reasons, it is also cool because it’s where Kinder Morgan is headquartered.
If you assumed that since the company is headquartered in the energy capital of the world that it itself is an energy company, you would be correct. However, Kinder Morgan isn’t your average energy or utilities company. Specifically, we see them as an energy infrastructure company.
They’re an energy infrastructure company because their primary source of revenue comes from their 83,000 mile network of pipelines across the country. For reference, they maintain the largest natural gas pipeline network in North America.
They build the pipelines and terminals while entities (oil and gas companies mainly) pay to use their infrastructure through fees. Major oil and gas companies such as Shell work extensively with Kinder Morgan. The contracts between these companies are typically long-term by nature, which is definitely favorable for a company such as Kinder Morgan especially being a player in the volatile oil and gas industry.
Nevertheless, that’s pretty much how the company makes its money.
Through their extensive pipeline network they transport natural gas, which is the bulk of their business while also transporting crude oil, gasoline, carbon dioxide and other materials as well.
Now that you have a better idea of what Kinder Morgan does and the landscape in which the company operates, let’s see if this publicly traded energy and pipeline giant is worth considering investing in.
Kinder Morgan’s stock financials
The company currently has a market capitalization of around $39 billion, a price-to-earnings (P/E) ratio of just over 16 and offers an annual dividend of $1.11.
According to the P/E ratio, the company’s stock is undervalued.
As a reminder, a P/E ratio of 20 is generally accepted to indicate that a stock is trading at fair value or what it’s actually worth. Subsequently, anything above 20 is objectively overvalued and under is, you guessed it, undervalued. Sometimes it might be worth paying a slight premium to invest in a company with strong growth prospects or general optimism from the overall investment community, however it doesn’t seem as though you’d be overpaying for this stock as of this writing (8/4/2022), so there’s no need for concern.
As it relates to Kinder Morgan’s balance sheet, the company maintains around $70.4 billion in total assets and nearly $40 billion in total liabilities. Given the nature of their work and the industries they operate in, the company has a very strong balance sheet which gives us initial confidence that no matter how volatile oil and gas prices become, the company will still be able to operate and provide for its customers, communities, clients and shareholders.
However, let’s further investigate the company’s financials.
As expected, their total annual revenue according to their income statement over the past five years has been consistently flat. From our team’s perspective, this is definitely not a bad thing nor is it a good thing. To us, it just means that the company is making money from its operations and current contracts and isn’t massively growing or shrinking. The company is humming along within its operations and we tend to like companies like that.
Additionally, according to the company’s cash flow statement their net income has been positive over the last five years, rising substantially in 2018, 2019 and 2021. Specifically, their net income in these years stood at around $1.9 billion, $2.2 billion and $1.8 billion respectively. This makes sense given that their net income primarily comes in the form of income from fees received for letting companies use their pipelines combined with the fact that the oil and gas space has seen substantial demand.
Someone needs to transport oil, gas and refined products in a safe and efficient manner and Kinder Morgan does it very well.
Kinder Morgan’s stock fundamentals
Given the relatively low possibility for growth in operations in the future (there are only so many areas pipelines can be built and so much available land) it’s important to our team that Kinder Morgan is good at turning a profit and achieving returns.
On the profit front, Kinder Morgan is thankfully above average when compared to the competition.
Specifically, the company has been able to achieve a trailing twelve month (TTM) net profit margin around 3% higher than that of the industry’s average. While this may not initially seem like a lot, this is a highly competitive industry and any edge of profitability (done in a safe and legal manner, of course) the company can gain is welcomed.
When it comes to the company’s TTM returns on equity, assets and investment, they are not as exciting as their profitability.
For instance, their returns in all of these categories are lower than that of the industry average. We are particularly concerned with the company’s low returns assets and investment. For example, physical assets are incredibly important for Kinder Morgan’s business and if through all of its pipelines they aren’t achieving higher returns over time, we think there’s reason for concern. However, the space they operate in is long-term by nature and we think that given Kinder Morgan’s operating capabilities and solid financials, they’ll be able to achieve these returns in the long run.
Regulatory considerations with Kinder Morgan
As we wrap up our stock analysis of Kinder Morgan, it should be noted that as with most companies in the oil and gas industry, they are subject to a lot of regulatory scrutiny.
This isn’t a huge concern for us, as it wouldn’t push the needle on whether or not we’d buy the stock, but it’s generally accepted that companies such as Kinder Morgan and the firms it works with are subject to paying heavy fines every so often when a pipe bursts. However, it’s more than likely that these companies have sufficient cash set aside (and exceptional legal teams) to pay fines and move on.
Should you buy Kinder Morgan stock?
This is a gigantic company with a ton of operations across the United States and surrounding areas. Given all of the information we’ve discussed in this article including the fact that the company’s share price appears undervalued(as of this writing) along with their scale, solid financials and the current state of the macroeconomy, we give the company a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.