Shares of Kinder Morgan (NYSE: KMI) rallied 11% in October, according to data provided byS&P Global Market Intelligence. Fueling the pipeline stock was its solid third-quarter results and optimism about the growth that lies ahead.
Growing optimism about its growth prospects
Kinder Morgan reported stable third-quarter results in October. The natural gas pipeline giant's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $1.8 billion, a 2% increase from the prior-year period. Meanwhile, distributable cash flow was flat at $0.49 per share. That kept the company on track to grow its adjusted EBITDA by 5% this year, while its cash flow should rise by about 8%.
The company also continued to approve additional expansion projects. It sanctioned the $455 million Gulf Coast Express Pipeline expansion, which will add 570 million cubic feet per day (MMcf/d) of additional capacity when it comes online in the middle of 2026. The company also approved a $94 million Gulf Coast Storage Expansion project to add 10 billion cubic feet (Bcf) of additional natural gas storage capacity when it enters service in the first half of 2027. Those projects helped refill its backlog, which ended the quarter with $5.1 billion of projects under construction, only down slightly after finishing $484 million of projects in the quarter.
Those projects are likely only the beginning of what's coming down the company's growth pipeline. Co-founder and executive chairman Richard Kinder discussed the outlook for the natural gas market on the third-quarter call. He noted that the sector is benefiting from the tremendous energy needs of artificial intelligence (AI) and data centers. Those facilities will fuel a surge in power demand in the coming years, which will require more natural gas.
Kinder commented, "In fact, in my decades of experience in the midstream arena, I've never seen a macro environment so rich with opportunities for incremental build-out of natural gas infrastructure." He expects the company to be a major player in developing new gas infrastructure to support growing demand. That should fuel consistent and sustainable earnings and free-cash-flow growth for years to come.
Still attractive, even after the surge
Kinder Morgan isn't as cheap as it was, given the surge in its stock price. However, it still trades at a relatively low valuation. The company's stock currently sells for less than 11 times its cash flow. For comparison, the S&P 500 trades at more than 25 times earnings. That much lower valuation is why Kinder Morgan's dividend yield is approaching 5% (compared to less than 1.5% for the S&P 500). With its growth prospects brighter than ever, Kinder Morgan still looks like a very attractive investment opportunity even after last month's big rally.
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Matt DiLallo has positions in Kinder Morgan. The Motley Fool has positions in and recommends Kinder Morgan. The Motley Fool has a disclosure policy.
