Kinder Morgan Inc (KMI) — Shares of this leading midstream energy company jumped more than 15% Thursday following the release of fourth-quarter and full-year earnings. While Q4 EPS of 27 cents was flat year over year, it beat the Zacks consensus estimate by 10 cents. For 2015, Kinder Morgan reported an 85-cent per-share profit, down from 2014 but handily beating estimates of 61 cents.
Investors also cheered management’s plans to reduce debt and spending and potentially buy back shares or increase its dividend. In early December, the pipeline company announced it would cut its dividend by 75% to 12.5 cents amid falling oil prices.
Shares currently yield 3.6%, and S&P Capital IQ Equity Research noted the lower dividend gives Kinder Morgan more financial flexibility, allowing continued spending on growth projects. Its analysts also said the company should benefit from an expected increase in the price of natural gas with 38% of this year’s projected EBITDA expected to come from its natural gas pipelines.
Capital IQ rates KMI stock a “Buy” with a 12-month target of $24. This is based on 11.7 times enterprise value to projected 2016 EBITDA, which is below its historical forward average.
Technically KMI stock is in a bear market. However, the huge post-earnings rally could have established a temporary bottom.
Buy KMI stock on a pullback to $13.50 with a target of $18 by its next quarterly earnings report. This would result in capital gains of over 30%, plus a dividend payment (shares go ex-dividend on Feb. 1). Longer-term investors could see KMI stock make a run to its bearish resistance line at $25, which is 80% above the current price.
