LNG Exports And Projects Like Trident Will Boost Future Operations

Key Takeaways

• Expansion projects and acquisitions indicate potential revenue growth and cost efficiencies through increased capacity and enhanced service offerings.
  
• Strategic financial management and focus on LNG exports position Kinder Morgan for improved margins and significant future earnings growth.
  
• Increased capital expenditures and potential execution risks, along with regulatory challenges and commodity price fluctuations, could pressure Kinder Morgan's financial performance and revenue growth.

Catalysts

Operates as an energy infrastructure company primarily in North America.

• Kinder Morgan's response to increasing natural gas demand includes multiple new major projects such as the expansion of the GCX system and the Trident line, supported by long-term contracts, indicating expected revenue growth due to increased transport capacity.
  
• Announced expansion projects including Trident and MSX are set to increase future capital expenditures, suggesting positive long-term impacts on revenue and potentially enhanced earnings through expanded service offerings.
  
• Acquisitions like that of the natural gas gathering system in the Bakken are strategically positioned to complement existing assets, promising potential cost efficiencies and revenue enhancements, indicating an increase in future earnings.
  
• Kinder Morgan's strong position serving the LNG export and Mexican export markets highlights potential for significant revenue growth, given expected increases in natural gas demand from LNG and power sectors.
  
• Debt reduction and management of capital expenditure suggest improved financial positioning, which alongside strategic asset investments, could enhance net margins and ultimately earnings per share in the future.

Kinder Morgan Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Kinder Morgan's revenue will grow by 8.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.3% today to 20.1% in 3 years time.
• Analysts expect earnings to reach $3.8 billion (and earnings per share of $1.43) by about January 2028, up from $2.6 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $5.9 billion in earnings, and the most bearish expecting $3.1 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.9x on those 2028 earnings, up from 23.3x today. This future PE is greater than the current PE for the US Oil and Gas industry at 11.9x.
• Analysts expect the number of shares outstanding to grow by 6.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.14%, as per the Simply Wall St company report.

Kinder Morgan Future Earnings Per Share Growth

Risks

• Increased capital expenditures, now expected to average $2.5 billion per year, could pressure net margins and cash flow if projects do not deliver expected returns.
  
• Lower-than-expected gathering volumes and production decreases, particularly in the Haynesville and Bakken regions, could impact revenue growth and earnings.
  
• Commodity price fluctuations, especially for natural gas and Brent, could negatively affect profitability and adjusted EPS if prices remain lower than budgeted.
  
• Potential execution risks in large-scale projects like Trident and MSX, along with competitive pressures, could affect return on investment and financial performance.
  
• Permitting and regulatory challenges, particularly with interstate projects like MSX, may delay project timelines and impact future revenue and earnings growth.

Valuation

• The analysts have a consensus price target of $29.42 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 $38.13, and the most bearish reporting a price target of just $22.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $19.1 billion, earnings will come to $3.8 billion, and it would be trading on a PE ratio of 25.9x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of $27.46, the analyst's price target of $29.42 is 6.7% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.