Saturday, May 17, 2014

Goldman Sachs Really, Really Likes Kinder Morgan

The market is getting hammered today. Shares of Kinder Morgan (KMI), however, have bucked the trend thanks to a positive report from Goldman Sachs.


Goldman Sachs analyst Theodore Durbin and team explain why they added Kinder Morgan to their Conviction Buy List:

After a large wave of long-haul natural gas pipeline construction across North America in the 2007-2011 timeframe, construction has slowed significantly over the last several years. We believe the midstream industry is now entering a new wave of long-haul natural gas infrastructure investment focused on supply and demand opportunities, including Appalachia takeaway, gas-fired power generation, LNG, and Mexico exports. As the largest gas pipeline operator in North America, we expect Kinder Morgan will win multiple growth projects in coming years. Kinder has identified $15bn of potential natural gas growth projects, of which only $2.7bn is in its current backlog as of its late January analyst day, and we therefore see large potential upside to its organic growth capital spending in gas alone.

Kinder also provides well diversified, highly stable, fee-based cash flows and solid 8-10% annual dividend growth. We believe shares are attractively valued on an absolute basis, and relative to peer midstream C-corps.

Shares of Kinder Morgan have gained 0.9% at 3:02 p.m. today, while Kinder Morgan Partners (KMP) has risen 0.6% to $75.42.

Barron’s, by the way, is not a fan of Kinder Morgan.

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