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Wells Fargo expects Kinder Morgan to benefit from continued multiple expansion; Upgrades to Overweight

EditorRachael Rajan
Published 2024/06/04, 16:50

On Tuesday, Wells Fargo (NYSE:WFC) adjusted its stance on Kinder Morgan (NYSE:KMI), upgrading the stock from Equal Weight to Overweight and increasing the price target to $22.00 from the previous $18.00.

The shift in rating comes as the firm anticipates positive changes in the company's earnings before interest, taxes, depreciation, and amortization (EBITDA).

The analyst from Wells Fargo noted that Kinder Morgan's base EBITDA suffered in the past five years due to the expiration of legacy gas contracts that were priced higher than the current market rates. However, they now foresee an improvement in the gas storage and pipeline segments as these headwinds turn favorable.

The report elaborates on expectations of a reverse trend in the gas contracting environment, which is likely to unfold over several years. This change is expected to be supported by rising power demand in the United States, which may lower terminal value risk.

"Given this dynamic will play out over years & terminal value risk is lower with power demand rising in the US, we believe KMI will benefit from continued multiple expansion," said the analysts.

Wells Fargo's analysis suggests that Kinder Morgan could see another 1x of multiple expansion, translating to an approximate 15% upside in the stock's value.

InvestingPro Insights

Following the recent upgrade by Wells Fargo, Kinder Morgan (NYSE:KMI) shows a promising financial outlook according to InvestingPro data. The company boasts a solid market capitalization of $43.28 billion and has demonstrated a consistent ability to maintain dividend payments, with a notable dividend yield of 5.9% as of the last twelve months leading up to Q1 2024. These dividends have been growing, with an increase of 3.6% over the same period.

InvestingPro Tips highlight Kinder Morgan's track record of raising its dividend for 6 consecutive years and maintaining these payments for 14 consecutive years, underscoring the company's commitment to shareholder returns. Additionally, Kinder Morgan trades with low price volatility, providing a degree of stability for investors. It's also worth noting that analysts predict the company will remain profitable this year, a sentiment that aligns with the positive EBITDA changes anticipated by Wells Fargo.

For investors seeking more in-depth analysis, there are additional InvestingPro Tips available, providing a comprehensive view of Kinder Morgan's financial health and market position. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and unlock the full potential of InvestingPro's insights.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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