When it comes to the world of oil and gas infrastructure projects and master limited partnerships (MLPs), Kinder Morgan Inc. (NYSE: KMI) remains one of the leaders. Its move to consolidate and eliminate its MLP has not changed the notion that it plays a vital role in the world of energy.

While the transportation of oil and gas has largely been dominated by transporting oil in years past, the U.S. ability to export natural gas has led many companies back into what had been less lucrative in prior years. For a reference of size as of January 22, 2019: Kinder Morgan owns or operates approximately 84,000 miles of pipelines and 157 terminals. Its market capitalization is also nearly $40 billion.

After reporting earnings earlier in January, Kinder Morgan saw its shares dip lower as its revenues were below expectations. After adjusting for losses from impairments and divestitures, the infrastructure giant’s earnings rose to $0.25 per share from $0.21 per share a year earlier. Its revenues of $3.78 billion compared with $3.63 billion a year earlier. Without providing a net income outlook for 2019, the company did forecast that it would have distributable cash flow of roughly $5 billion for 2019 and that the budget contemplates a $1.00 per share annual dividend.

24/7 Wall St. wanted to take a closer, second look at the forecasts and expectations now that the investors’ event risk for January has passed.

There is a priority of investing over just buying back shares and paying dividends. After all, the company has to invest in new projects and maintain its existing infrastructure. Kinder Morgan’s $3.1 billion discretionary budget now calls for over two-thirds of that budget heading into natural gas infrastructure projects.

Its two largest projects are pipelines that will transport natural gas from the Permian Basin in West Texas to the Gulf of Mexico’s coast. With a price target of about $1.75 billion, one pipeline will transport roughly 2 billion cubic feet (bcf) of natural gas per day from the Waha Hub in the Permian Basin and will take it to the Agua Dulce hub close to Corpus Christi, Texas. Kinder Morgan is also the lead developer in a $2.1 billion Permian Highway Pipeline targeted for a late-2020 operation, and that is also expected to transport some 2 billion cubic feet of natural gas each day from the Waha Hub to the Katy Hub near Houston.

Kinder Morgan also plans to boost its natural gas exports to Mexico and is planning more pipelines to support the liquefied natural gas (LNG) industry along the Gulf Coast. The company’s Elba Island LNG export terminal also is about to come online near Savannah, Georgia. In a recent investor presentation, Kinder Morgan said it plans to spend $715 million to maintain its current assets in 2019.

24/7 Wall St. has tracked multiple analyst reactions to Kinder Morgan’s earnings and dividend forecast, and after its analyst day in January.

After attending Kinder Morgan’s analyst day presentation last week, Merrill Lynch opined that management shared thoughts on the options under consideration, but the firm also said that there were no new announcements. Still, Kinder Morgan effectively did dismiss the speculated sale of its CO2 unit for now but said that it was willing to consider a favorable offer. The Merrill Lynch rating is Buy, along with a $21 price objective. Merrill Lynch’s Dennis Coleman also predicted that Kinder Morgan likely would invest in operations ahead of share repurchase efforts:

Kinder Morgan addressed the perennial question on its capital allocation priority following the sale of Trans Mountain, meeting its targeted 4.5x leverage target and securing a growth backlog of $5.7 billion. Recent management commentaries have indicated competing priorities for excess cash flow between reinvesting in capital projects versus share repurchases… management noted that its growth projects are expected to generate higher returns than share repurchases, although at the current share price, Kinder Morgan estimates that share repurchases generate a <20% levered IRR. That said, Kinder Morgan expects to use excess cash for capital projects before share repurchases.

CRFA (S&P Global) still has a Buy rating and a $20 price target for Kinder Morgan shares. While the firm sees the potential for a higher dividend as well, there was a focus on the natural gas side of the equation here. CFRA’s Stewart Glickman said:

We think natural gas takeaway capacity out of the Permian will increasingly be important. We see Kinder Morgan’s Gulf Coast Express (GCX) pipeline project, which will move natural gas from the Permian to the Gulf Coast near Corpus Christi, as a key catalyst in this regard. GCX is anticipated for completion in October 2019. Similarly, the pending Permian Highway Project, which could move 2 bcf/d of natural gas, is another growth vehicle for this purpose… The high volumes of natural gas produced along with crude oil in the major shale basins will increasingly require pipeline access to areas of demand, and we see Kinder Morgan filling a major portion of that incremental demand.

Argus is even more positive on Kinder Morgan, with a Buy rating and a $23 price target. The independent research firm’s Bill Selesky also talked up the natural gas angle:

The higher earnings reflected a stronger contribution from the Natural Gas Pipelines segment, which benefited from higher transmission volumes, as well as increased power demand and new projects placed into service.

Kinder Morgan’s shares have been relatively sturdy in January. After ending at $15.38 on the last day of 2018, its shares were last seen just under $18. It has traded with a high of $18.05 and a low of $15.10 in January, and its 52-week trading range is $14.62 to $18.67. The consensus analyst price target from Thomson Reuters is $21.22, and the street-high price target is up at $25.

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