Better Buy: Kinder Morgan vs. MPLX


High oil and gas prices due to the Russian oil ban and rising demand are a good omen for Kinder Morgan (KMI) and MPLX (MPLX). But which of these stocks of oil and gas are the best buy now? Read on to find out.



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Rising demand for oil and natural gas following the resumption of economic and industrial activities and the controlled supply of OPEC + led to high energy prices last year. However, rising Western sanctions on Russian oil have significantly disrupted oil supplies and further increased their prices. As OPEC + adheres to its original plan to increase oil production by a modest amount, rising demand is expected to boost higher prices in the coming months.

High oil prices should benefit midstream companies with an established network of pipelines and terminals. Investor interest in this space is evident from the ETF of the USCF Midstream Energy Revenue Fund (UMI) 9.2% gains over the last three months compared to the SPDR S&P 500 Trust ETF (SPY) Loss of 10.3%.

Kinder Morgan, Inc. (KMI) and MPLX LP (MPLX) are two prominent players in the oil and gas mid-range segment. KMI is an energy infrastructure company that operates through natural gas pipelines; Pipeline Products; Terminals; and CO2 segments. It has approximately 83,000 miles of pipelines carrying natural gas, gasoline, crude oil, carbon dioxide and other products, and 143 terminals that store petroleum products and chemicals and handle bulk materials such as coal and petroleum coke. MPLX is a diversified parent limited liability company (MLP) that owns and operates logistics and medium energy infrastructure assets and provides fuel distribution services. It is also engaged in inland marine businesses that include the transportation of light products, heavy oil, crude oil, renewable fuels, chemicals and raw materials, and operates ships and barges, refining logistics, terminals, railway facilities and caverns. ‘storage.

While MPLX has earned 3.2% gains since the year, KMI has risen 20%. Which of these actions is best to choose now? Let’s find out.

Latest news

On February 7, 2022, KMI received the commercial commitments needed to build a renewable diesel power plant in Southern California. Once built, this center will allow customers to add batches of renewable diesel (R99) to the Los Angeles area and move them to the pipeline system of the energy transportation and storage company SFPP, LP, in the markets of high demand from Colton and Mission Valley. This will create up to 20,000 barrels per day (bpd) of combined diesel production capacity in its truck racks, with the potential to expand in the future.

On May 2, 2022, MPLX, WhiteWater Midstream, Stonepeak Infrastructure Partners and the natural gas utility West Texas Gas, Inc. announced their final investment decision to expand the Whistler pipeline after reaching sufficient firm transportation agreements with the chargers. It is expected to enter service in September 2023, the expansion will increase the capacity of the main line by 2 Bcf / d and 2.5 Bcf / d by the planned installation of three new compression stations. This will further enhance the pipeline’s ability to provide reliable and cost-effective waste gas transportation outside the Permian Basin, which would benefit the growing position of gas processing companies, producers in the region and gas customers.

Recent financial results

KMI’s revenue for the first fiscal quarter of 2022, which ended March 31, 2022, was down 17.6% year-on-year to $ 4.29 billion. The company’s operating income amounted to $ 1.02 billion, 45.7% less than the previous year’s period. While its adjusted net income fell 46.7% year-on-year to $ 732 million, its adjusted profit fell 46.7% to $ 0.32. As of March 31, 2022, the company had $ 84 million in cash and cash equivalents.

For the first fiscal quarter of 2022, which ended March 31, 2022, MPLX’s total revenue and other revenue increased 11.6% year-over-year to $ 2.10 billion. The company’s operating income amounted to $ 1.06 billion, an improvement of 8.8% year-on-year. Its net income amounted to $ 825 million, 11.6% more than last year. The MPLX EPA reached $ 0.78, an improvement of 14.7% year-over-year. As of March 31, 2022, the company had $ 42 million in cash and cash equivalents.

Past and expected financial performance

Over the past three years, KMI’s EBITDA, total assets and leveraged free cash flow have decreased to CAGRs of 3.2%, 3.2% and 5.2%, respectively.

KMI’s EPA is expected to decline 13.6% year-over-year in fiscal year 2022 through December 31, 2022, and increase 2.6% year-over-year in fiscal year 2023. Its revenue is expected to decline decrease 5.5% in fiscal year 2022 and increase 0.4% in fiscal year 2023. Analysts expect the company’s EPA to decline at a rate of 2.7% annually over the next five years.

Over the past three years, MPLX’s EBITDA, total assets and leveraged free cash flow have increased to CAGRs of 9.7%, 14.9% and 164.1%, respectively.

Analysts expect MPLX’s EPA to grow 11.2% year-over-year in fiscal year 2022 through December 31, 2022, and 4.4% in fiscal year 2023. Revenue is expected to grow 3.1% year-over-year in fiscal year 2022 and down 0.2% in fiscal year 2023. Analysts expect the company’s EPA to grow at a rate of 3.7% year-over-year over the next five years.

Evaluation

As for PEG forward non-GAAP, MPLX is currently trading at 3.73x, 55.4% more than K88’s 0.88x. In terms of advanced sales / EVs, the 4.90x KMI is compared to the 5.15x MPLX.

Profitability

KMI’s subsequent 12-month revenue is nearly 1.6 times that of the MPLX. However, MPLX is more profitable, with 50.7% EBITDA margin compared to 36.7% of KMI.

In addition, the ROE, ROA and ROTC of MPLX of 23.8%, 6.6% and 6.9% are compared with 3.4%, 3.3% and 3.5% of KMI, respectively .

POWR ratings

Although MPLX has an overall B rating, that translates to Strong Buy on our property POWR ratings system, KMI has an overall grade C, equivalent to Neutral. POWR scores are calculated taking into account 118 different factors, each weighted to an optimal grade.

Both KMI and MPLX have been rated A by Momentum, according to their impressive price gains over the past year. KMI has gained 19.4% in the last nine months, while MPLX has returned 12.2%.

KMI has been rated B in terms of quality, in line with its superior profitability ratios in the industry. KMI’s leveraged free cash flow margin of 26% at the end of 12 months is 266.8% higher than the industry average of 7.1%. MPLX’s quality grade C reflects its lower profit margins than the industry. MPLX has a leveraged free cash flow margin of 4.3% at the end of 12 months, 40% lower than the industry average of 7.1%.

Of the 33 actions in classification A MLPs – Oil and Gas industry, MPLX ranks No. 7, while KMI ranks No. 59 out of 98 shares in Class B Energy – Oil and gas industry.

Beyond what we said above, our POWR rating system has rated MPLX and KMI for Feeling, Value, Stability and Growth. Get all MPLX scores here. Too, click here to see additional POWR ratings for KMI.

The winner

Rising energy prices are expected to benefit midstream operators KMI and MPLX in the coming months. However, higher profitability makes MPLX a better buy now.

Our research shows that the chances of success increase if you bet on stocks with an overall POWR score of buy or strong buy. Click here to access the most valued stocks in the MLP oil and gas industry, and here for those in the Energy – Oil and Gas industry.


Shares of KMI were trading at $ 19.23 per share on Monday afternoon, an increase of $ 0.20 (+ 1.05%). So far this year, KMI has gained 25.00%, compared to a -16.25% increase in the S&P 500 benchmark index over the same period.


About the author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. He is passionate about educating investors to succeed on the stock market.

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