Is Kinder Morgan (KMI) Undervalued After Its New Bond Offerings?

Why Kinder Morgan stock is back in focus after new bond offerings

Kinder Morgan (KMI) recently completed several fixed income offerings, including senior unsecured fixed rate notes with attached guarantees. These new bonds give investors fresh information about the company’s funding mix and balance sheet decisions.

The transactions include US$595.782 million of 6.150% notes due August 1, 2056 and US$1.149138 billion of 5.550% notes due August 1, 2036. Both sets of notes are senior, unsecured, unsubordinated and carry fixed coupons.

See our latest analysis for Kinder Morgan.

At a share price of US$30.85, Kinder Morgan’s stock has eased back in the short term, with the 30 day share price return down 3.95% and the 90 day share price return down 4.93%. The 5 year total shareholder return of 137.73% points to stronger long term gains and suggests recent bond activity may be prompting investors to reassess both growth prospects and balance sheet risk.

If this kind of capital markets activity has your attention, it can be useful to see what else is moving in related areas and check out 37 power grid technology and infrastructure stocks

The recent pullback in Kinder Morgan shares sits alongside steady revenues, earnings growth, and fresh long-term debt. Is this simply sentiment adjusting to new bond issuance, or a signal that the core business is being repriced?

Most Popular Narrative: 12.7% Undervalued

Kinder Morgan’s most followed narrative points to a fair value of $35.33, above the recent $30.85 close, which puts the new bond issuance into sharper context for equity holders.

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.

Read the complete narrative.

Want to see what sits behind that growth story for Kinder Morgan? The most followed narrative ties steady contract backed cash flows, measured revenue expansion and a richer future earnings multiple into one valuation blueprint.

The narrative uses a 7.11% discount rate and links Kinder Morgan’s revenue and earnings forecasts to a fair value of $35.33 per share compared with the current $30.85 price. It leans heavily on expectations for long term natural gas demand, a large project backlog and mostly fee based contracts to support future cash flows while also factoring in moderating profit margins and modest share count growth.

Result: Fair Value of $35.33 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, Kinder Morgan’s high net debt and the risk of lower tariffs when contracts renew could pressure future cash flows and challenge this undervalued narrative.

Find out about the key risks to this Kinder Morgan narrative.

Another View on Kinder Morgan’s Valuation

The Simply Wall St DCF model paints a different picture for Kinder Morgan. At a share price of $30.85 and an estimated future cash flow value of $55.16, the stock screens as heavily undervalued. If that gap closed even part way, the narrative around recent bond issuance could look very different. The real question is which story you find more convincing.

Look into how the SWS DCF model arrives at its fair value.

Next Steps

With both risks and rewards in play for Kinder Morgan, it makes sense to review the data for yourself and move quickly to form your own view, starting with 3 key rewards and 2 important warning signs

Looking for more investment ideas beyond Kinder Morgan?

If Kinder Morgan has sharpened your focus, do not stop here. The broader market offers plenty of other stocks that could better match your goals and risk appetite.

• Spot potential bargains with strong fundamentals by checking out the 52 high quality undervalued stocks.
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• Strengthen your downside protection by scanning the 83 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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