BofA Securities has shown confidence in Kinder Morgan (KMI), an energy infrastructure giant, by upgrading their rating to Buy. The analyst’s decision is based on the company’s stabilized core business and its strong position in the growing natural gas pipeline market.
Despite the current uncertainties in the energy sector, BofA recognizes the potential in companies with contracted natural gas pipelines. Kinder Morgan benefits from this, as the demand for natural gas is expected to increase significantly in the coming years. This demand surge is driven by several factors, including the expansion of Gulf Coast LNG projects and the increasing electrification of utilities fueled by AI.
Kinder Morgan’s contracted business model is a key factor contributing to its long-term growth potential. The company’s robust natural gas pipeline business, which is valued higher than its oil and product pipelines, compensates for any declines in those lower-valued segments.
The analyst has increased their price target for KMI to $27 from $23, indicating a positive outlook for the company’s future. This optimism is fueled by several key factors, including Kinder Morgan’s ability to effectively supply gas to utilities. This capability is evident in the recent sanctioning of a $3 billion, 1.2 Bcf/d SNG pipeline expansion, a project similar to those undertaken by Williams Companies Inc (WMB).
Previously, concerns surrounding the Good Neighbor plan, which could have cost Kinder Morgan billions, and the Double H pipeline transition to NGL service, had caused hesitation. However, these concerns have been resolved. The Supreme Court’s halting of the Good Neighbor plan and the successful transition of the Double H pipeline, effectively compensating for the prior contract, have solidified Kinder Morgan’s position.
With a significant market share of 45% in LNG deliveries, Kinder Morgan is well-positioned to capitalize on the expected surge in power demand driven by electrification and AI. By 2030, the company anticipates a conservative 4-5 Bcf/d increase in gas demand in regions served by their pipelines.
The positive outlook for Kinder Morgan is reflected in the recent price action, with KMI stock closing Friday at $24.56, up 3.56% on the day.
