Kinder Morgan Inc. (NYSE: KMI) traded lower on Tuesday after an analyst downgrade added pressure on the shares. The independent research firm Argus downgraded Kinder Morgan to Hold from Buy.

While Argus sees Kinder Morgan raising its annualized dividend to $1.25 per share by 2020 (versus $1.00 today), the firm’s Bill Selesky believes the Hold rating is appropriate until there is a rebound in the commodities markets.

Lower-trending crude oil, natural gas and natural gas liquids prices are expected to negatively restrict systemwide volume and capacity demand for the company. Argus also sees the potential for further reductions in Kinder Morgan’s adjusted EBITDA rate, and that should slow its near-term earnings growth rate.

While Kinder Morgan shares have outperformed the benchmark since the beginning of 2019 and over the past year, the earnings missed the Argus estimate. Kinder Morgan’s projected backlog of $5.7 billion as of June 30 consisted of $4.8 billion in infrastructure projects and about $900 million in CO2 projects. That high backlog is actually shown to be down from $6.3 billion at the end June in 2018. The report showed that most of its backlog spending is for expanding projects in its Natural Gas Pipelines segment, and it is said to adjust for the C$4.5 billion sale of the Trans Mountain Expansion Project by Kinder Morgan Canada.

Tuesday’s report said:

Kinder Morgan holds a 70% equity stake in Kinder Morgan Canada Ltd. We expect the company’s new Gulf Coast Express (GCX), Permian Highway Pipeline (PHP), and Elba Island LNG Export Terminal projects to help offset the loss of TMEP. As discussed in past notes, insider buying on Kinder Morgan shares continues. Executive Chairman Kinder purchased 400,000 shares on August 23 and 300,000 shares on August 26. As of September 4, 2019, Mr. Kinder owned 253.8 million shares or 11.2% of all outstanding shares.

Other valuation metrics outlined in the Argus report were noted as follows:

• Trading at 20.2-times its 2019 operating EPS estimate and at 18.1-times its 2020 estimate, compared to a six-year historical average range of 23-39.
• Trailing price/book multiple of 1.4, near the low end of the historical range of 1.3-2.0.
• Trailing price/sales multiple of 3.3, near the top of the historical range of 2.2-3.4.
• The price/cash flow multiple of 9.8 is above the midpoint of the historical average range of 6.7-10.3.
• The enterprise value/EBITDA multiple of 11.8 is below the low end of the range of 12.8-18.2.

The total debt-to-capitalization ratio was 49.9%, down from 51.3% a year earlier (slightly above the peer average). Over the past five years, the debt/cap ratio has averaged 52.6%.

Kinder Morgan shares were trading down 1.2% at $20.17 on Tuesday with less than 2 hours until the market close. Its 52-week range is $14.62 to $21.50, and its consensus target price from Refinitiv was $22.20.

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