As I said in June's "Update On the Kinder Morgan Short (KMI)", at $39.78, We have quite a bit on this one, links below. We're coming up on the one-year anniversary of the roll-up announcement so here are some of the prices from last year:
On Aug. 8 the stock closed at $36.12, opened the following Monday at $42.41, shook out a couple hundred million shares over the course of that week and closed on Friday the 15th at $41.43.
One quick note. I don't know who the writer is and he seems a bit wordy for my taste but given a rising interest rate environment and/or weak natural gas prices his $29 figure could be high.
In the short term, the company reports next week.
From Brian Nelson's Tumblr:
Kinder Morgan’s Fair Value: $29 Per Share
We are initiating institutional equity research coverage of Kinder Morgan with a fair value estimate of $29 per share and a Very Poor dividend safety rating. There are two reasons why we are making our institutional work on Kinder Morgan publicly available, and we think both are consistent with our service to the investor. In our opinion:
1) the incidence of incorrectly-applied valuation methodologies that use debt-infused, financially-engineered dividends as the foundation for intrinsic worth estimation have artificially propped up Kinder Morgan’s stock price. In instances where dividends are not organically-derived, we believe an enterprise free cash flow to the firm (FCFF) model is the most appropriate model to value entities.
Our view is that investors are being “misled” to believe that Kinder Morgan can cover its dividend with organically-derived free cash flow, as measured by the traditional and widely-accepted definition of free cash flow–cash flow from operations less all capital spending. By our estimates, Kinder Morgan cannot cover its dividend by this measure, and we encourage management to make clear non-GAAP disclosures to this effect.
In the case of a corporate, we believe the non-GAAP measure of free cash flow is more informative than the non-GAAP measure of distributable cash flow, which is primarily reserved for use within the master limited partnership–MLP–universe. Kinder Morgan is a corporation, not an MLP, and we believe that its “newly-consolidated” business structure has increased financial transparency where investors can now more appropriately apply traditionally-accepted valuation techniques to shares with confidence.
Investors should no longer be swayed from their very own common sense with the argument that somehow because Kinder Morgan is an energy pipeline owner/operator that long-held academic and professional valuation approaches do not apply to it. Kinder Morgan, as with any other company, is objectively a future free cash flow stream and a capital structure like any operating corporate, and it should be valued as such.
We maintain our view that all companies invest considerable growth capital into their business to grow cash flow from operations, and executive teams for most corporates in these cases still report non-GAAP free cash flow, not distributable cash flow, and determine dividend policy on a target of such non-GAAP free cash flow and/or earnings. Kinder Morgan’s maintenance capital spending is on pace to surpass $600 million in 2015, up ~20%, while total capital spending is budgeted ~$4.2 billion for the year, and that excludes ~$3.1 billion related to the Hiland acquisition.Some of our other KMI posts:
The breakdown of Kinder Morgan’s maintenance capital, growth capital, and acquisition capital may be attractive by most measures, but its composition is not that different from other maintenance capital-light corporates, where distributable cash flow is not applied in the context of dividend policy. We acknowledge Kinder Morgan’s attractively-low maintenance capital spending, but maintain our view that all capital outlays are vitally important to the valuation context. If we assume that all growth capital for every company will be value-creative, then analysis is not being performed. The time value of money in terms of growth capex outflows coupled with cash inflows matters.
From our experience across our 1,000+ equity coverage universe, corporates do not continuously borrow or issue equity to pay a growing dividend when their growth and acquisition plans significantly and consistently exceed operating cash flow generation year-after-year…after year. In these cases, corporates do not pay a dividend at all. We posit that, if all corporates were allowed this “luxury,” there would be little need for the generation of free cash flow, or earnings, at all in paying out an outsize dividend to investors....MUCH MORE but you get the point.
Aug. 11
In Other News: "Kinder Morgan to abandon MLP structure it pioneered, will become 4th biggest US energy company" (KMI)
Aug. 12, 2014
Kinder Morgan Creates Money Out of Thin Air
Aug. 12
Asking the Right Question About the Kinder Morgan Deal: Why Now? (KMI)
Aug. 19
David Cay Johnston on Kinder Morgan’s Evolving Tax Strategy (KMI)
Oct. 14, 2014
Kinder Morgan Has Given Up All the Gains From The August Roll-up (KMI)
Feb. 2, 2015
Oil: A Look At The Incredible Levitating Kinder Morgan Inc. (KMI)
