There are many reasons Kinder Morgan (NYSE: KMI) is a good buy, all of which involve natural gas production and demand.
Natural gas production and demand reached record levels domestically in Q1 and are expected to continue growing, creating a dual tailwind for midstream energy operators.
The company’s cash flow is between production and demand, which allows for internal funding of growth projects to meet the rising demand, volume-driven strength in Q1 results, and guidance.
KMI Forecasts Strength for 2025: Capital Return is Safe
The company’s Q1 update reiterates the initial 2025 outlook, adding that it expects to exceed that guidance by at least the amount contributed by its latest acquisition. Bakken-based Outrigger is a gathering and processing network that has increased KMI's capacity. Among the critical details of the acquisition is that Outrigger’s business aligns perfectly with KMI's, including numerous long-term contracts with high-quality customers, which provide revenue visibility.
Kinder Morgan is not immune to tariffs and faces potential headwinds, primarily due to rising steel prices. However, the company has derisked its growing project backlog by preordering critical components, locking in contract price caps, and securing domestic capacity at steel mills.
There is also a risk of lost demand from China, but executives say that the EU and Asia (excluding China) will make up for it. The takeaway is that Kinder Morgan is in a solid position to continue growing in 2025 and 2026, its cash flow is safe, and its capital return is reliable.
Kinder Morgan’s capital return is significant. The stock yields more than 4% after its Q2 2205 price pullback, and it is a reliable payment. The payout ratio is high relative to earnings, but it's the free cash flow (FCF) that counts. The company’s FCF is sufficient to sustain its CapEx, expansion plans, and dividend, with minimal use of debt. The net-debt-to-EBITDA ratio was under 4x at the end of Q1, with earnings growth forecasted.
Earnings growth is also tied to contracts and a growing project backlog, which reached $8.8 billion in Q1. The backlog includes projects to increase capacity for gathering, processing, transportation, and storage.
Analysts Will Lead KMI Market To Multiyear Highs
[content-module:Forecast|NYSE: KMI]The company’s guidance update is significant because it puts the full-year 2025 EPS forecast above the consensus, suggesting the positive revision trend will continue. As it is, the consensus reported by MarketBeat forecasted a low-double-digit EPS growth in 2025 and for a sustained high-single-digit EPS CAGR through the decade’s end.
The trends for the stock ratings are bullish, including increased coverage, firming sentiment, and a rising price target. The consensus in early Q2 is for a 10% gain, with recent revisions pushing it into the high-end range. That puts KMI stock near $38 and approaching record-high levels.
Institutional activity also aligns with rising stock prices. The institutions tend to buy this stock on balance every quarter and ramped their activity to a multi-year high in Q1. They own more than 60% of the stock and provide a solid support base and market tailwind unlikely to diminish.
Kinder Morgan Stock Price Gears Up For a Big Rally
Kinder Morgan’s stock price pulled back from its early 2025 high in Q2 but remains on track to retest all-time highs within the next 12 to 18 months. The monthly chart shows solid support above the critical support target and a market waving a Bullish Flag. The Bullish Flag is a continuation signal that could lead this market to another $12 gain. In that scenario, the market could rise to the $40 level by June 2026. The critical trigger points are the high set in Q1 2025 near $29 and $31.
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