Kinder Morgan (KMI 0.36%) bounced back nicely in 2019. Overall, the energy company's stock rallied 37.7%, which blew past the equally red-hot S&P 500's 28.9% gain. Add in dividends, and the outperformance widened to a total return of 44.4% for Kinder Morgan versus 31.5% for the S&P 500.
Among the factors fueling Kinder Morgan's performance last year were its financial results, which had it on track to achieve its full-year forecast despite project delays and asset sales. Investors will see whether that was the case when the company reports its fourth-quarter and full-year results later this week. Here are a few things to watch in that report.
Check if Kinder Morgan meets its budget expectations
Heading into 2019, Kinder Morgan anticipated that it would produce $5 billion, or $2.20 per share, in distributable cash flow (DCF) last year, which would be 10% and 7%, respectively, above 2018. Through the third quarter, the company had generated $3.64 billion, or $1.60 per share, of DCF. As such, it needs to produce $1.36 billion, or $0.60 per share, in the fourth quarter to achieve its full-year forecast.
Ideally, the company will deliver results right around that target. That seems likely since the company recently published its 2020 outlook. That forecast would see cash flow rise this year to $5.1 billion, or $2.24 per share, a roughly 3% increase from last year's total. On the one hand, the recently closed sale of Kinder Morgan Canada and the U.S. portion of the Cochin pipeline to Pembina Pipeline (PBA 0.48%) will act as a growth headwind this year. But the company expects expansion projects, rate increases, lower interest expenses, and higher oil prices to more than offset the asset sales.
Look what it plans to do with its increased financial flexibility
The transaction with Pembina further enhanced Kinder Morgan's already much-improved financial profile. Because of that, the company noted that it enters 2020 with about $1.2 billion of additional flexibility after accounting for its planned 25% dividend increase and the expectation that it will invest another $2.4 billion on expansion projects.
The company noted that it could use that flexibility to repurchase shares or make additional growth-focused investments. If it put all that cash to work right away, it could accelerate its per-share DCF growth rate to a range of 5% to 6% for 2020.
Given the potential for faster growth in 2020, investors should see what the company plans to do with its increased financial flexibility.
See if it added any more growth projects to its backlog
Kinder Morgan currently expects to secure between $2 billion and $3 billion of new expansion projects per year. But it had only added about $1.2 billion of organic growth projects through the end of the third quarter. Because of that, investors should see if the company was able to at least meet the low end of its target range for 2019.
The company has several expansions under development, including Permian Pass, which would be a third gas pipeline out of the Permian Basin. But it has struggled to get enough customers to sign up for capacity on these projects due to intense competition from rivals. Ideally, Kinder Morgan will report progress on these and other projects, which will enable it to start refueling its growth engine. If not, then the company might need to use its financial flexibility to buy growth either through acquisitions or its repurchase program.
All eyes are on what's ahead
Given the overall stability of Kinder Morgan's operations, it shouldn't have much problem meeting its fourth-quarter expectations. Because of that, investors will pay the closest attention to what the energy company sees up ahead. With its increasing financial flexibility, it could accelerate its growth rate by investing in more expansion projects, if it can find high-return opportunities. If not, it might have to resort to buying back shares or purchasing growth via acquisitions to continue growing shareholder value.