Against the backdrop of a volatile oil market, energy company Kinder Morgan, Inc. (KMI) is set to report its fourth-quarter earnings tomorrow. In the third quarter, the company posted a lower-than-expected profit, as high interest rates curbed away the gains from its natural gas and production pipeline segment.
Its adjusted EPS for the third quarter remained flat year-over-year at 25 cents, missing the analysts' average estimate of 26 cents. The company also expected to finish 2023 below its expectations due to lower commodity prices. However, KMI is optimistic about its prospects for the current year.
Moreover, KMI announced last year that it would acquire the gas pipelines in South Texas from NextEra Energy Partners, LP (NEP) for $1.82 billion. The company expects to fund the transaction, which is anticipated to close in the first quarter of 2024, with cash on hand and short-term borrowings.
Furthermore, the company has to navigate a highly volatile energy market amid the crisis in the Middle East, as the standoff between Houthis and the United States intensifies in the Red Sea, which serves as a crucial shipping route.
On the other hand, despite concerns about supply disruption, the U.S. Energy Information Administration (EIA) expects average annual crude oil prices in 2024 and 2025 to remain near their 2023 average as global demand and supply for petroleum liquids remain steadily balanced. Although Brent prices are projected to rise from $78/b in December 2023 to $85/b in March 2024, they are projected to decline after April 2024.
Given this scenario, let’s look at the trends of KMI’s key financial metrics to understand why it could be wise to wait for a better entry point in the stock.
Analyzing Kinder Morgan, Inc.'s Financial Performance
KMI has witnessed multiple fluctuations in trailing-12-month net income from the first quarter of 2021 up to the third quarter of 2023. The data are summarized as follows:
- On March 31, 2021, the net income was $1.83 billion.
- It slightly decreased to $1.71 billion by June 30, 2021, and mildly rebounded to $1.75 billion on September 30, 2021.
- By December 31, 2021, it saw a slight increase to $1.78 billion.
- The first major dip was noticed in the first quarter of 2022 when the net income fell to $1.04 billion on March 31.
- However, by June 30, 2022, there was a striking rebound, with the figure soaring to $2.43 billion, followed by a consecutive rise to $2.51 billion on September 30, 2022.
- The net income peaked on December 31, 2022, at $2.54 billion.
- In 2023, the company's net income continued to fluctuate, starting from $2.56 billion on March 31, but then declined consecutively to $2.51 billion on June 30, 2023, and further dropped to $2.47 billion by September 30, 2023.
From the first recorded value in March 2021 to the last in September 2023, KMI's net income grew by 34%. Despite some downswings, the overall trend over this period shows an increase. Primarily from 2021 to 2022, KMI demonstrated significant resilience, bouncing back from its major dips. However, in 2023, the trend dips slightly, warranting careful observation for future periods.
The trailing-12-month revenue of KMI has shown considerable fluctuations and a general upward trend over the past couple of years.
- On March 31, 2021, the revenue was $13.81 billion.
- It increased to $14.40 billion by June 30, 2021, and further to $15.30 billion by September 30, 2021.
- An impressive jump was observed in the last quarter of 2021, with revenue surging to $16.61 billion.
- Despite a drop to $15.69 billion in the first quarter of 2022, the revenue rebounded strongly to $17.69 billion in the second quarter and reached a high of $19.05 billion in the third quarter.
- By December 31, 2022, the revenue still managed to gain slightly and stood at $19.20 billion, marking the highest point in this data series.
- However, the year 2023 started with a decrease in revenue to $18.80 billion in the first quarter, followed by another downswing to $17.15 billion by June and $15.88 billion by September.
From the first tracked value on March 31, 2021 ($13.81 billion) to the latest on September 30, 2023 ($15.88 billion), the company's revenue exhibits a total growth rate of about 14.99% over these years, despite the fluctuating trends.
It's noteworthy that more recent data, predominantly from late 2022 and through 2023, reveals a contrasting pattern with a decreasing revenue trend.
The data series represents the reported gross margin percentages of KMI over a span of several quarters from 2021 to 2023.
- At the start of the period, on March 31, 2021, the gross margin was at 51.8%.
- By June 30, 2021, the gross margin had slightly dipped to 50.5% before noticeably dropping to 47.6% on September 30.
- From there, a downward trend emerged: gross margin dropped to 44.1% by December 31, 2021, then further to 41.1% by March 31, 2022, and continued declining until it hit 35.2% on September 30, 2022.
- However, the end of 2022 saw a minor uptick, with the value reaching 35.7% on December 31, 2022.
- In 2023, the trend reversed, and the gross margin grew steadily. It rose to 37.6% by March 31, then continued increasing to 41.5% by June 30 and finally 45.0% by September 30.
Overall, the gross margin trend for KMI indicates a marked decrease through much of 2021 and 2022, followed by a recovery in 2023. The growth rate, computed as the difference between the last value and the first, suggests an overall decrease of 6.8% over the complete timeline. Please note that recent data points, especially the encouraging rise in 2023, should be given more emphasis.
Looking at the trend for KMI’s asset turnover over the series, noticeable observations include:
- The first recorded asset turnover value was 0.19 on March 31, 2021.
- A general upward trend is observed in KMI's asset turnover from March 2021 to December 2022, growing from 0.19 to 0.28 respectively. This signals an overall improvement in the effectiveness of KMI in utilizing its assets to generate revenue.
- The highest reported asset turnover within this period occurred on December 31, 2022, reaching a peak of 0.28.
- From March 2023 through September 2023, KMI's asset turnover exhibited a downward fluctuation, declining to 0.23 by September 30, 2023. This marks a decrease in KMI's efficiency in using its assets to generate income during this timeframe.
With regards to the growth rate measuring the last value from the first, the asset turnover has increased by approximately 21% from March 2021 to September 2023.
Fluctuating Trends in Kinder Morgan, Inc.'s Share Prices: Analyzing Jul 2023-Jan 2024
The data set for KMI share prices spanning from July 21, 2023, to January 12, 2024, represents a fluctuating trend with a generally decreasing pattern till mid-September 2023, followed by an overall increasing trend. Key trends and growth rates:
- On July 21, 2023, the share price stood at $17.69. By July 28, 2023, it had risen to $17.95.
- The price then experienced a slight overall decrease over the next month, falling to $16.82 by September 8, 2023.
- The share price seesawed in the weeks following, hovering in the range of $16.64 to $17.07 until the end of September.
- In early October, there was a brief dip to $16.14, which stands out as the lowest point in the given period.
- The share price then saw a gradual increase over two months. By November 24, 2023, it reached $17.16.
- The price continued to increase, with some minor fluctuations, reaching $17.73 by the end of December 2023.
- It peaked at $17.97 on January 12, 2024, representing the highest price in the given period.
This establishes that KMI's share price had an overall deceleration in the third quarter of 2023, with a degree of volatility thereafter, but started accelerating again in the fourth quarter of 2023, continuing into the first few weeks of 2024. Here is a chart of KMI's price over the past 180 days.
KMI's Strong Momentum, Quality, and Sentiment Ratings: A Detailed Analysis
Based on the data provided, here's a brief analysis of KMI's POWR Ratings grade:
- KMI is a part of the Energy - Oil & Gas category, which includes a total of 82 stocks.
- The POWR grade for KMI has constantly remained at category C (Neutral) from July 2023 till the latest date available, which is January 2024.
- In the period from July 22, 2023, to January 12, 2024, KMI's ranking in its category has seen fluctuations. It appears to have improved significantly from 46th place on July 22, 2023, down to 19th place by October 28, 2023, denoting a rise in rank as lower values are considered superior.
- However, after this point, there is a slightly increasing trend in the rank value again, implying a minor slump in rank.
- As of the last date provided, which is January 16, 2024, KMI's category rank stands at #33.
In summary, over the observed period, while KMI's POWR grade has maintained consistency with a C (Neutral) grade, its rank within the Energy - Oil & Gas category has experienced variations, reaching its peak performance in late October 2023 before experiencing a slight decline by early 2024.
KMI has POWR Ratings across six dimensions, but three stand out as particularly noteworthy: Momentum, Quality, and Sentiment.
Momentum: Of all the KMI's ratings dimensions, Momentum consistently scores the highest throughout the period from July 2023 to January 2024. With ratings hovering predominantly in the high 80s to low 90s, it peaked in November 2023 at 92.
Quality: This dimension also returned high ratings scores for KMI. While Quality rating values showed a generally downward trend, they still held steady from the mid-60s to the low 70s. The values peaked in July 2023 at 72, the lowest on record being 64 in September 2023.
Sentiment: Compared to the other two highlighted dimensions, the Sentiment rating showed the most dynamic changes. It started at a comparatively low 27 in July 2023, followed by a gradual increase over the following months, reaching a peak of 65 in September 2023. However, after September, the rating values show a downward trend going into the start of the following year.
It's important to note that while these findings cover significant trends and high rating dimensions, they provide only part of the overall picture. Other dimensions like Growth, Stability, and Value may also play a role in assessing POWR Ratings for KMI.
How does Kinder Morgan, Inc. (KMI) Stack Up Against its Peers?
Other stocks in the Energy - Oil & Gas sector that may be worth considering are Cheniere Energy, Inc. (LNG), Adams Resources & Energy, Inc. (AE), and CVR Energy, Inc. (CVI) - they have better POWR Ratings. Click here to explore more Energy - Oil & Gas stocks.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
KMI shares were trading at $17.89 per share on Tuesday afternoon, down $0.08 (-0.45%). Year-to-date, KMI has gained 1.42%, versus a -0.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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