Kinder Morgan Inc. (NYSE: KMI) has had its share of hard times lately. This went from the best infrastructure operation as a master limited partnership (MLP) to a corporation structure ahead of oil’s massive slide. It was that slide that crushed Kinder Morgan’s shares, over and over, and the company eventually capitulated and did the one unpopular move of cutting its dividend.
Maybe nothing lasts forever. That might mean low or falling oil prices. It may also mean analyst sentiment. Kinder Morgan received a very rare dual analyst upgrade on Thursday. That double upgrade came from Credit Suisse: first, raising its rating to Outperform from Neutral, and second raising its price target to $20.00 from $18.00.
Most analysts upgrading their official rating in the MLP and related sectors might have a rating upgrade but a price target downgrade. After all, Kinder Morgan shares breached $12.00 at one point during the January selling craze. That is down from a 52-week high of $44.71.
Credit Suisse’s John Edwards was the analyst behind the upgrade. His words should stand out as calling a bottom: “Hard to see much downside from here, no matter what happens in energy markets.”
Edwards noted that management emphasized high grading capital projects and how it will fund itself in 2016 and beyond from internally generated cash. Also highlighted was that Kinder Morgan plans to deleverage over time with minimal credit risk exposure. And for earnings and dividends, Edwards sees Kinder Morgan being able to generate roughly $0.88 per unit in growth to 2020. Assuming no equity issuance and excess cash is used to deleverage the balance sheet, Edwards sees close to $3.00 share in distributable cash flow on a platform of roughly 4.5 times its debt-to-EBITDA. Ultimately he thinks this could result in a double in the equity in five years.
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