Wells Fargo has issued an analyst report on Kinder Morgan Inc. (NYSE: KMI) that shines some light on how the company can be evaluated following its recent master limited partnership (MLP) consolidation acquisitions. Kinder Morgan currently has a dividend yield of 4.5%, and Wells Fargo noted that the company has issued guidance for a 5.2% yield in the first quarter of 2015. There is a projected 10% annual dividend growth, which is expected to drive up shares over time.

Wells Fargo forecasts that Kinder Morgan could grow its dividend at a compound annual growth rate of 9% from 2015 to 2019. Compared to its peer group, the brokerage firm signaled that Kinder Morgan trades at a discount because its growth rate of 10% measures up against the peer group median of 7.9%. Overall, given the size and structure of the company, there is no one in the peer group that is directly comparable, but they are comparable as an aggregate.

For investors searching for tax efficient yield in a c-corp. structure, Wells Fargo believes Kinder Morgan represents a compelling investment as it screens well relative to each of its peers. Wells Fargo upgraded its rating of Kinder Morgan to Outperform from Market Perform, and it also raised the valuation range by $6 to $46 to $48 per share. What is interesting here is that this valuation takes it well above the consensus and fairly close to being the most optimistic call, as the highest analyst price target in the Thomson Reuters analyst cadre is $50.

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The analyst report notes that the underperformance since the post-merger high in mid-August — down roughly 8% — provides an attractive entry point for investors. The analysts on the call for this report were Michael Blum, Sharon Lui and Praneeth Satish. They explained how they evaluated Kinder Morgan:

Our valuation range is based on a blend of (1) our three-stage dividend discount model, which assumes a required rate of return of 8.0% and a long-term growth rate of 2.5% and (2) a target yield of 4.3% for the low end of our range. Risks to KMI trading below our valuation range include completion of the company’s pending acquisitions of KMP, KMR, and EPB, financing risks, a decline in crude oil prices, and rising interest rates.

This valuation is based on an expectation that the market will value the company on a yield versus growth basis following its MLP roll-up transaction. Kinder Morgan shares were up 0.8% at $38.50 shortly after the opening bell, versus a consensus analyst price target of $43.67. The stock has a 52-week range of $30.81 to $42.49, and its market cap is barely under $40 billion for the standalone entity.

The remaining Kinder properties were up as follows shortly after the open. These will soon all be part of Kinder Morgan Inc., but for now they still trade on their own on the New York Stock Exchange. Their gains after the call were seen as follows:

• Kinder Morgan Management LLC (NYSE: KMR) was up 0.6% at $94.69.
• Kinder Morgan Energy Partners L.P. (NYSE: KMP) was up 0.6% at $93.80.
• El Paso Pipeline Partners L.P. (NYSE: EPB) was up less than the rest with a gain of 0.5% to $40.40.

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