Kinder Morgan (NYSE:KMI) recently reported stronger-than-expected results for the fourth quarter of 2018. Investors, however, seemingly gave a collective shrug as shares of the pipeline giant meandered lower. That reaction doesn't make much sense given some of the noteworthy numbers the company reported. Here are three that you won't want to have overlooked.
$2.12 per share in distributable cash flow
Kinder Morgan ended 2018 on a high note by reporting $0.56 per share of distributable cash flow in the final quarter. That pushed its full-year number to $2.12 per share, which was $0.07 above its initial forecast. As a result, cash flow grew 6% overall and ended the year just $0.02 below the record of $2.14 per share it hit in 2015.
That's worth pointing out because shares of Kinder Morgan currently trade 61% below their peak price in late 2015 even though the company is making almost as much money. Furthermore, it has a much-stronger balance sheet now than it did back then, evidenced by the fact that two rating agencies recently upgraded Kinder Morgan's credit rating. Despite those factors, investors aren't willing to pay much more than eight times cash flow for Kinder Morgan's stock, a steep discount to the more than 20 times cash flow at which they valued the company back in 2015.
$25 million in share repurchases
Kinder Morgan has been working to address its valuation disconnect by repurchasing some of its dirt cheap stock. The company quietly spent $25 million to retire 1.6 million shares during the fourth quarter. That brought its full-year repurchases to $275 million, and the overall total to $525 million since it launched the buyback program in 2017.
Kinder Morgan has about $1.475 billion remaining on its current authorization -- enough to retire roughly 4% of its outstanding shares given the currently cheap price. That's why it wouldn't be a surprise to see the company buy back even more stock in 2019. The company could complete noncore asset sales, such as its stake in Kinder Morgan Canada, or use its stronger balance to complete an even more meaningful buyback this year.
$500 million of new capital projects added to the backlog
Kinder Morgan noted that its expansion project backlog stood at $5.7 billion at the end of 2018, or $800 million below where it was at the end of the third quarter. Many investors focused on the fact that the backlog declined. That likely caused them to miss some positives. First, the main reason the backlog value went down is that Kinder Morgan completed $1.3 billion of expansion projects during the quarter, including the $805 million Broad Run Expansion Project and the 357-million-Canadian-dollar ($269 million) Base Line Terminal in Canada, which will boost results over the coming year, helping push cash flow up to an anticipated $2.20 per share in 2019.
That large slate of project completions overshadowed the fact that Kinder Morgan added $500 million of new projects to the backlog in the quarter. During the accompanying conference call, Tom Martin, president of the natural gas pipeline segment, noted that half of those projects were midstream gathering and processing expansions to support volume growth of its customers, while the rest will support an LNG project that's yet to come.
Management also hinted that it has several other expansions in development. For example, it's working with Enbridge (NYSE:ENB) and Oiltanking to build an oil export loading terminal in Texas. The $800 million project would link Enbridge's oil pipelines to a coal terminal Kinder Morgan currently operates but would repurpose for oil service. In addition, the company could eventually expand its Double H pipeline in North Dakota to support rising production from the Bakken shale, as well as some of its other systems around the country. As a result, the company should be able to continue expanding its asset base and cash flow at a healthy pace over the next several years.
Investors don't seem to get it
Kinder Morgan delivered strong results in both the fourth quarter and the full year. The company's cash flow is almost back up to its peak, while its balance sheet is the strongest it's been in years. Meanwhile, the company is returning more cash to shareholders: It not only boosted the dividend 60% last year but bought back $275 million in shares. And it continued to lock up more expansion projects that will drive growth. Despite all this, Kinder Morgan's stock sells for a more-than-50% discount to where it traded just a few years ago. That doesn't make sense, and shares look like a steal right now.