Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

JPMorgan upbeat on Kinetik Holdings stock citing DRIP elimination

EditorEmilio Ghigini
Published 2024-03-08, 04:30 a/m
© Reuters.
KNTK
-

On Friday, JPMorgan (NYSE:JPM) analyst Jeremy Tonet upgraded Kinetik Holdings Inc. (NASDAQ:KNTK) from Neutral to Overweight and increased the price target to $40 from $38. The analyst cited Kinetik's attractive asset positioning and the elimination of its dividend reinvestment plan (DRIP) as key factors contributing to a favorable near-term setup for the company.

Kinetik Holdings, a full-service midstream operator with a focus on the Delaware Basin, is known for its large processing positions in the Permian Basin, as well as its stakes in significant gas takeaway pipelines, such as the Permian Highway Pipeline and Gulf Coast Express, and the Shin Oak NGL pipeline. These assets provide clear downstream integration advantages, setting Kinetik apart from its small to mid-cap peers and enhancing its cash flow stability.

Since JPMorgan initiated coverage of Kinetik in 2022, the firm has been cautious, citing a relatively full valuation and the dilutive effects of the DRIP. However, Kinetik's outlook has improved, with expectations of low double-digit natural gas growth and low single-digit crude growth in 2024, anticipated to underpin strong EBITDA growth.

The Permian Basin's natural gas logistics needs are viewed as particularly attractive, with Kinetik well-positioned to benefit from this trend. The company's valuation has grown more appealing, with Permian growth leading to greater multiple compression compared to its peers. The conclusion of the DRIP, combined with lower capital expenditures and new leverage to top-tier New Mexico acreage, has improved Kinetik's risk/reward profile.

Kinetik's leverage ratio is expected to trend toward approximately 3.5x debt/EBITDA by the end of 2024, reducing the urgency to sell its stake in the Gulf Coast Express pipeline. Management has indicated a more opportunistic approach to asset sales, potentially after pipeline expansion to achieve a better sale multiple. However, not selling the asset is also considered a satisfactory outcome.

JPMorgan's analysis places Kinetik favorably on multiple metrics and notes that industry consolidation trends could present an upside risk to the company's shares. Kinetik could be an attractive acquisition target for larger midstream companies seeking to expand in the Permian. CEO Welch has expressed openness to high-value acquisition offers, given the company's premier positioning in the region. With these considerations, JPMorgan has revised its price target and rating for Kinetik Holdings.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.