Kinder Morgan’s TransMountain Sale Triggers Bernstein Upgrade

Kinder Morgan Inc (NYSE: KMI) announced the sale in May of its TransMountain Pipeline system and expansion project to the Canadian government for the U.S. dollar equivalent of $3.38 billion.

The Analyst

Bernstein analyst Jean Ann Salisbury upgraded shares of Kinder Morgan from Market-Perform to Outperform and increased the price target from $21 to $22, suggesting 28-percent upside.

The Thesis

The TransMountain sale brings Kinder Morgan from a 5.1 times multiple to 4.7 times and removes uncertainty for the company, Ann Salisbury said in a Tuesday note. (See the analyst’s track record here.)

The upgrade is based on the following expectations, the analyst said: 

• The sale of the TransMountain expansion project, which has occurred, and an improved debt overhang.
• The sale of the enhanced energy recovery business for a 5 times multiple, thereby reducing leverage and removing the “most volatile business line.” 
• The sale of any other non-core, non-take-or-pay assets.
• Refraining from M&A to fuel growth.

Kinder Morgan’s declaration of itself as a safe, defensive, 80-percent take-or-pay equivalent, 4.5 multiple midstream company. 

Over the next year, Bernstein expects deleveraging from the TMX sale, the potential payment of a competitive dividen and investor demand for a diversified, non-Permian-focused play to act as multiple drivers for Kinder Morgan. 

The Price Action

Kinder Morgan shares were rallying 2.48 percent to $17.60 at the time of publication Tuesday afternoon. 

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Photo courtesy of Kinder Morgan.