Kinder Morgan Inc. (KMI) Annual Valuation – 2014

Kinder-morgan-logoBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Kinder Morgan Inc. (KMI) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Kinder Morgan, Inc. (KMI) owns and manages a diversified portfolio of energy transportation and storage assets. The Company operates in five business segments: Products Pipelines-KPM, Natural Gas Pipelines-KMP, CO2-KMP, Terminals-KMP and Kinder Morgan Canada-KMP. The Company through Kinder Morgan Energy Partners, L.P. (KMP) operates or owns an interest in approximately 37,000 miles of pipelines and approximately 180 terminals. These pipelines transport natural gas, refined petroleum products, crude oil, carbon dioxide and other products, and its terminals store petroleum products and chemicals, and handle such products as ethanol, coal, petroleum coke and steel. The Company is a provider of carbon dioxide (CO2), for enhanced oil recovery projects in North America. On May 25, 2012, KMI acquired El Paso Corporation. In August 2012, Kinder Morgan Energy Partners, L.P. acquired Tennessee Gas Pipeline (TGP) and a 50% interest in El Paso Natural Gas (EPNG) pipeline from KMI.

KMI Chart

KMI data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 1/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 1/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $32.44
Value Based on 3% Growth $14.25
Value Based on 0% Growth $8.35
Market Implied Growth Rate 12.26%
Net Current Asset Value (NCAV) -$57.97
PEmg 33.01
Current Ratio 0.60
PB Ratio 2.61

Balance Sheet – 3/31/2014

Current Assets $3,662,000,000
Current Liabilities $6,068,000,000
Total Debt $34,799,000,000
Total Assets $76,054,000,000
Intangible Assets $26,966,000,000
Total Liabilities $63,254,000,000
Outstanding Shares 1,027,900,000

Earnings Per Share

2014 (estimate) $1.21
2013 $1.15
2012 $0.81
2011 $0.83

Earnings Per Share – ModernGraham

2014 (estimate) $0.98
2013 $0.77
2012 $0.49
2011 $0.28

Conclusion:

Kinder Morgan does not have a long enough operating history as a publicly traded company to qualify for either the Defensive Investor or the Enterprising Investor; however, it is still useful for value investors to take a brief look at the company and keep it on the radar for the future.  In the meantime, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the lack of earnings data for more than 4 years prohibits the ModernGraham valuation model from determining an estimate of intrinsic value; however, the market is currently implying an estimate of 12.26% earnings growth.  If one does not believe the company will achieve that growth rate, the price would appear to be overvalued.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Kinder Morgan Inc. (KMI)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Kinder Morgan Inc. (KMI) or in any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.


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