Growing US LNG Exports Will Expand Global Pipeline Networks

Key Takeaways

• Global and U.S. natural gas demand trends support Kinder Morgan's long-term infrastructure growth and stable, fee-based revenue streams.
  
• Regulatory improvements and contractual stability lower execution risks and provide reliable, predictable returns for future projects and expansions.
  
• High leverage, mature assets, competitive pressures, and energy transition trends collectively threaten Kinder Morgan's future revenue stability, margins, and expansion prospects.

Catalysts

Operates as an energy infrastructure company primarily in North America.

• Anticipated growth in global natural gas demand-driven by rising populations in Asia and Africa and increased energy needs from urbanization-is expected to sustain or increase utilization of Kinder Morgan's core pipeline and LNG infrastructure, underpinning long-term revenue growth through higher throughput volumes and long-term contracts.
  
• The surging U.S. LNG export market, with U.S. gas feed to export terminals projected to double by 2030 and Kinder Morgan already transporting about 40% of this feed gas, is likely to significantly increase future earnings, especially as additional U.S. capacity comes online and new contracts are signed.
  
• Robust U.S. natural gas demand growth for power generation, bolstered by the proliferation of data centers and utilities' preference for natural gas as a cleaner baseload power source, supports continued expansion of Kinder Morgan's pipeline network-driving incremental project backlog and contributing to future revenue and EBITDA growth.
  
• Improved regulatory environment-including streamlined federal permitting and favorable Supreme Court and legislative actions-is accelerating project timelines and reducing execution risk for new capital projects, helping maintain or potentially improve margins by decreasing permitting and construction delays.
  
• Stable, fee-based, long-term contractual arrangements for recent and upcoming expansions, especially those serving LNG export facilities and power markets, provide greater visibility and predictability to future cash flows and earnings, directly supporting dividend sustainability and reducing earnings volatility.

Kinder Morgan Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kinder Morgan's revenue will grow by 8.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.0% today to 18.3% in 3 years time.
• Analysts expect earnings to reach $3.7 billion (and earnings per share of $1.57) by about August 2028, up from $2.7 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.3x on those 2028 earnings, up from 23.0x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.6x.
• Analysts expect the number of shares outstanding to grow by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.55%, as per the Simply Wall St company report.

Kinder Morgan Future Earnings Per Share Growth

Risks

• Kinder Morgan's continued high leverage-$32.3 billion in net debt and a net debt to adjusted EBITDA ratio near 4x-limits its financial flexibility for future expansion, elevates risk in downturns, and could impact net margins and credit profile in the long term.
  
• Despite optimism on pipeline expansions, future utilization faces risk from accelerating energy transition trends, with policies favoring renewables, growing electrification of the grid, and possible reductions in long-term fossil fuel consumption, all of which could pressure future revenues and volume growth.
  
• The company's asset base is large and mature, requiring increasing maintenance and safety capital expenditures; this aging infrastructure may constrain free cash flow and put sustained pressure on margins and earnings over time.
  
• Kinder Morgan faces persistent and fierce competition on new projects (such as Copper State and Haynesville expansions), with tariffs, shifting contract terms, and pricing dynamics potentially compressing project returns and limiting EBITDA growth.
  
• Overbuild risk in regions like the Permian Basin, combined with future recontracting at lower rates when existing contracts roll off ("step down in rates"), poses a risk to future transportation revenue and margins, particularly if incremental supply outpaces demand.

Valuation

• The analysts have a consensus price target of $31.012 for Kinder Morgan based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $38.0, and the most bearish reporting a price target of just $24.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $20.2 billion, earnings will come to $3.7 billion, and it would be trading on a PE ratio of 23.3x, assuming you use a discount rate of 7.5%.
• Given the current share price of $28.04, the analyst price target of $31.01 is 9.6% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.