Kinder Morgan (KMI +0.33%) recently reported solid fourth-quarter results and issued 2025 guidance. However, most notable from the report was the increasing project backlog the company was seeing as a result of natural gas demand coming for LNG (liquefied natural gas) exports, power plants, and artificial intelligence (AI).
Let's look at the pipeline company's most recent results and guidance to see if this is a good time to buy the stock.
NYSE: KMI
Key Data Points
Solid Q4 results and growing project backlog
One of the biggest things to come out of Kinder Morgan's latest earnings report was the company's growing project backlog. Its project backlog increased a whopping 60% compared to its third quarter, going from $5.1 billion to $8.1 billion. Projects related to natural gas accounted for 89% of its backlog.
In expects the EBITDA multiple on most of its projects (those not associated with carbon dioxide enhanced oil recovery) to be 5.8 times. This means that for every $100 million it spends, it expects to generate an incremental $17.24 million in EBITDA from these projects. Midstream projects are often done between 6x to 8x EBITDA multiples, so this is a very solid expected return on these projects.
Kinder Morgan highlighted three big natural gas projects it has recently secured: South System Expansion 4, Mississippi Crossing, and the Trident Intrastate Pipeline. The company said it is very well positioned for the trends driving natural gas volumes, with it serving 45% of the LNG export demand, 50% of natural gas exports to Mexico, and 45% of the power demand in the desert Southwest, Texas, and Southeast regions. It also noted that we are still in the very early innings of AI data centers and the power needed for them.
It sees natural gas demand in the U.S. rising by 28 billion cubic feet (BCF) a day by 2030. This projection is very similar to the 28.5 BCF a day increase that natural gas producer Antero Resources recently provided. While U.S. natural gas consumption has gradually been increasing, these projections are close to doubling recent consumption within five years, which would be an enormous increase.
Turning to its results, Kinder Morgan's adjusted earnings per share (EPS) jumped 14% to $0.32. That was just below analyst expectations for EPS of $0.34.
It adjusted EBITDA, meanwhile, rose 7% to $2.06 billion. Its distributable cash flow (DCF), which is operating cash flow minus maintenance capital expenditures (capex), climbed by 8% to $1.26 billion. Its DCF per share rose 10% to $0.57. Adjusted EBITDA and DCF are two of the most common metrics used to evaluate midstream companies.
Kinder Morgan declared a dividend of $0.2875 per share, a 2% increase compared to a year ago. Its forward yield is about 3.8%. For the year, it generated free cash flow of after dividend payments of $449 million, so the dividend is well covered.
The company ended the year with leverage (net debt divided by trailing-12-month adjusted EBITDA) of 4 times. That is within the typical 3 times to 4.5 times range for midstream companies, and its own leverage target of 3.5 times to 4.5 times.
Looking ahead, Kinder Morgan forecasts a 4% increase in adjusted EBITDA to $8.3 billion and a 10% jump in adjusted EPS to $1.27. It is looking to reduce its leverage to 3.8 times by year-end while increasing its dividend by 2% to $1.17 for the year. The guidance does not include its recently announced $640 million Outrigger Energy II acquisition to expand its footprint in the Bakken oil formation. It said the acquisition was being done at a multiple of 8 times 2025 expected EBITDA, which would be about $80 billion if it owned it for the entire year.
Moving forward, Kinder Morgan plans to now spend $2.5 billion a year in growth capex over the next several years, up from a prior budget of $2 billion.
Image source: Getty Images.
Is Kinder Morgan stock a buy?
Kinder Morgan's Q4 results and guidance were generally solid, but it is its strong project backlog and expected return on these projects that is exciting. The industry is expecting huge natural gas demand over the next several years, and Kinder Morgan is well positioned to take advantage of these increased volumes. In addition to increasing demand in the in the U.S. stemming from AI data centers, there is also huge demand to export natural gas to Mexico and to ship it overseas as well.
Kinder Morgan has strong ties to the Texas utility market and also has pipelines near Abilene, Texas, which will be the first data center site of the proposed $500 billion Stargate AI data center project. As such, it is in a good spot to be an AI winner, as Texas appears to be at the heart of the AI data center buildout given its proximity to cheap associated gas coming from the Permian basin. While the market was roiled Monday by DeepSeek, a new Chinese AI player whose model is said to be very cheap to train, there is still much not known about the accuracy of that claim, and I would not see this derailing U.S. AI projects based on speculation.
From a valuation perspective, Kinder Morgan trades at an enterprise value-to-EBITDA ratio of just over 11 times. That's below where midstream companies have traded at in the past and is an attractive valuation given the growth opportunities in front of the company. As such, Kinder Morgan is a solid stock to consider at current levels.
