Key Takeaways

Expansions and acquisitions could boost Kinetik's footprint and revenue, though execution risks might challenge revenue projections.
Operational improvements and strategic projects aim to enhance financial flexibility and margins, despite potential headwinds and execution challenges.
Vulnerability to market fluctuations and execution risks could impact Kinetik Holdings' profitability and revenue growth, amid financial exposure and reliance on key projects.

Catalysts

About Kinetik Holdings

Through its subsidiaries, operates as a midstream company in the Texas Delaware Basin.What are the underlying business or industry changes driving this perspective?

The strategic expansions into the Delaware basin and the acquisition of Durango Permian could potentially increase Kinetik's operational footprint and enhance revenue through increased gas processing volumes, albeit these growth projections could face execution risks, possibly affecting revenue expectations.
Adjustments in electricity operational expenses through a planned large-scale gas-fired power generation initiative in Reeves County could optimize operational costs and improve net margins, though the project's execution risks might temper margin expansion.
Despite a challenging quarter with a temporary $15 million headwind from negative Waha prices, Kinetik's implementation of risk mitigation measures could stabilize earnings in the future, although any recurring pricing volatility might limit significant bottom-line improvements.
Kinetik's goal to increase adjusted EBITDA by 15% in 2025, driven by the start-up of new processing facilities and the expansion of existing assets, indicates potential earnings growth, but unexpected delays and operational hurdles might restrict comprehensive earnings realization.
With a focus on leveraging its capital with disciplined deployment and a potential greenfield power project, Kinetik aims for improved financial flexibility and long-term capital returns, though achieving consistent dividend growth may be slower than anticipated due to required capital commitments.

Kinetik Holdings Earnings and Revenue Growth

Kinetik Holdings Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on Kinetik Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming Kinetik Holdings's revenue will grow by 11.7% annually over the next 3 years.
The bearish analysts assume that profit margins will increase from 4.1% today to 6.1% in 3 years time.
The bearish analysts expect earnings to reach $126.2 million (and earnings per share of $1.76) by about May 2028, up from $61.2 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 65.3x on those 2028 earnings, up from 40.2x today. This future PE is greater than the current PE for the US Oil and Gas industry at 11.3x.
Analysts expect the number of shares outstanding to grow by 0.61% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.8%, as per the Simply Wall St company report.

Kinetik Holdings Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The unexpected negative Waha gas prices and restricted plant operations in Texas during November caused a $15 million financial impact, highlighting the company's vulnerability to market price fluctuations and resulting in lower-than-expected net margins and earnings.
Heavy reliance on pipeline projects like Kings Landing and ECCC for growth poses execution risks; delays could temper expectations of improved future revenues and adjusted EBITDA growth.
Financial exposure due to fluctuating electricity prices and compression costs could impact operating expenses, directly affecting profitability and net earnings.
The sale of a stake in GCX has reduced pipeline transportation earnings, which could strain future revenue growth from this segment if not compensated by new projects.
Increasing leverage, despite reductions, remains at 3.4 times, which might constrain financial flexibility and impact net margins due to potential higher interest expenses if leverage targets are adjusted or missed.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bearish price target for Kinetik Holdings is $42.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Kinetik Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $70.0, and the most bearish reporting a price target of just $42.0.
In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $2.1 billion, earnings will come to $126.2 million, and it would be trading on a PE ratio of 65.3x, assuming you use a discount rate of 6.8%.
Given the current share price of $40.34, the bearish analyst price target of $42.0 is 4.0% higher. The relatively low difference between the current share price and the analyst bearish 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.

Delaware Basin And Durango Permian Will Create New Opportunities

Shared on07 May 25Fair value Decreased 67%

Shared on30 Apr 25Fair value Increased 205%

Shared on07 May 25
Fair value Decreased 67%

Shared on30 Apr 25
Fair value Increased 205%