kmi kinder morgan, inc. energy sector: holdkmi kinder sector:morgan, inc. energy hold free cash flow...

Analysts: Aleck Boyd, Dario Munoz Poletti,Bernadette Smith and Sara Specht

Washburn UniversityApplied Portfolio Management

Report Date: 4/18/2016Market Cap (mm) $39,563 Annual Dividend $1.61 2‐Yr Beta (S&P 500 Index) 1.35 Kinder Morgan, Inc.Return on Capital 2.7% Dividend Yield 8.9% Annualized Alpha ‐71.2% Compared With:

EPS (ttm) $0.10 Price/Earnings (ttm) 184.9 Institutional Ownership 5.2% ONEOK Partners, L.P.Current Price $18.09 Economic Value‐Added (ttm) ‐$497 Short Interest (% of Shares) 2.6% Williams Companies, Inc.

12‐mo. Target Price $19.50 Free Cash Flow Margin ‐3.7% Days to Cover Short 1.3 and the S&P 500 Index

Business Description

Total Revenue 13.0% Free Cash Flow ‐369.5%EBIT 11.4% Total Invested Capital 8.6%

NOPAT ‐25.3% Total Assets 7.2%Earnings Per Share ‐30.7% Economic Value‐Added ‐170.6%

Dividends Per Share 4.7% Market Value‐Added ‐151.5%

2011 2012 2013 2014 2015

17.3% 29.8% 27.7% 27.6% 28.6%N/A ‐110.8% ‐12.7% 6.6% ‐3.7%2.6% 1.0% 3.2% 2.1% 0.8%3.3% 4.0% 4.4% 4.1% 10.8%

2011 2012 2013 2014 2015

0.84 0.35 1.15 0.90 0.121.05 1.40 1.60 1.74 1.611.08 2.94 2.95 3.11 0.51N/A (12.18) (1.72) 0.94 (0.25)

Datasource: Capital IQ

KMI Kinder Morgan, Inc. Sector: Energy HOLD

Free Cash Flow Margin

Kinder Morgan, Inc. operates as an energy infrastructure company in North America. It operates through Natural Gas Pipelines, CO2, Terminals, Products Pipelines, Kinder Morgan Canada, and Other segments. The Natural Gas Pipelines segment owns and operates interstate and intrastate natural gas pipeline and storage systems; natural gas and crude oil gathering systems, and natural gas processing and treating facilities; natural gas liquids fractionation facilities and transportation systems; and liquefied natural gas facilities. The CO2 segment produces, transports, and markets CO2 for use in enhanced oil recovery projects; and owns interests in oil‐producing fields, gas processing plants, and crude oil pipelines in the Permian Basin region of West Texas. The

Investment ThesisDue to declining oil prices Kinder Morgan experienced a decline in revenues, and a decrease in net income due a one‐time tax adjustment from an acquisition and unusual litigation expenses. Even with unfavorable oil prices the analysis confirms that Kinder Morgan has held up to the previous investment thesis. Despite negative impacts in 2015, the firm's long‐term strategic acquisition plan and strong commitment to dividends supports Kinder Morgan's long term fundamentals, which include helping customers to provide safe and reliable energy, bulk commodity and liquids product transportation, storage and distribution. Kinder Morgan's intentions to expand, strong commitment to dividends, and positive future outlook justifies a hold on Kinder Morgan stock.

ANNUALIZED 3‐YEAR CAGR

Margins and Yields

Operating Margin

NOPATFree Cash Flow

Earnings YieldDividend Yield

Per Share Metrics

EarningsDividends

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KMI ^SPX

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2012 2013 2014 2015

Price/Earnings Price/Free Cash Flow

$0$500

$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500$5,000

2011 2012 2013 2014 2015

EBIT Net Operating Profit After Tax

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2011 2012 2013 2014 2015

Economic Value‐Added Market Valued‐Added

0%1%2%3%4%5%6%7%8%9%10%

2011 2012 2013 2014 2015

ROA ROE ROIC

Kinder Morgan, Inc. KMI Sector Energy ONEOK Partners, L.P. OKS Sector Energy

2011 2012 2013 2014 2015 2011 2012 2013 2014 2015

Total Revenue 7,943 9,973 14,070 16,226 14,403 Total Revenue 11,323 10,182 11,869 12,192 7,761Cost of Goods Sold 4,769 4,759 7,365 8,435 6,452 Cost of Goods Sold 9,745 8,540 10,222 10,089 5,641

Gross Profit 3,174 5,214 6,705 7,791 7,951 Gross Profit 1,577 1,642 1,647 2,103 2,120SG&A Expense 561 548 613 610 690 SG&A Expense 414 433 465 599 609R&D Expense 0 0 0 0 0 R&D Expense 0 0 0 0 0Dep. & Amort. 1,068 1,419 1,806 2,283 2,708 Dep. & Amort. 178 203 237 291 352Other Oper. Exp. 168 273 394 419 436 Other Oper. Exp. 45 49 57 71 83

Operating Income 1,377 2,974 3,892 4,479 4,117 Operating Income 940 956 889 1,142 1,076Interest Expense (703) (1,427) (1,690) (1,807) (2,055) Interest Expense (221) (192) (206) (267) (337)Other Non‐Oper. Exp. 243 172 445 486 457 Other Non‐Oper. Exp. 125 128 120 119 121

EBT ex‐Unusuals 938 1,747 2,662 3,167 2,523 EBT ex‐Unusuals 844 892 803 994 860Total Unusual Exp. (128) (404) 776 (76) (1,751) Total Unusual Exp. (1) 7 12 (70) (258)

Earnings Before Tax 810 1,343 3,438 3,091 772 Earnings Before Tax 843 899 815 924 602Income Tax Expense 361 139 742 648 564 Income Tax Expense 13 10 11 13 4

Net Income 594 315 1,193 1,026 253 Net Income 682 660 528 566 195

Earnings per Share $0.84 $0.35 $1.15 $0.90 $0.12 Earnings per Share $3.35 $3.04 $2.35 $2.33 $0.73Dividends per Share $1.05 $1.40 $1.60 $1.74 $1.61 Dividends per Share $2.37 $2.69 $2.89 $3.07 $3.16Effective Tax Rate 44.57% 10.35% 21.58% 20.96% 73.06% Effective Tax Rate 1.49% 1.12% 1.33% 1.37% 0.69%Total Common Shares 707 907 1,036 1,137 2,187 Total Common Shares 204 217 225 243 267Year‐end Stock Price $32.17 $35.33 $36.00 $42.31 $14.92 Year‐end Stock Price $57.74 $53.99 $52.65 $39.63 $30.13

996 997 998 999 1000 996 997 998 999 1000

Assets 2011 2012 2013 2014 2015 Assets 2011 2012 2013 2014 2015Cash and Equivalents 411 714 598 315 229 Cash and Equivalents 35 537 135 43 5Short‐Term Investments 0 0 0 0 0 Short‐Term Investments 0 0 0 0 0

Total Cash & ST Invest. 414 723 685 458 341 Total Cash & ST Invest. 35 537 135 43 5Total Receivables 933 1,362 1,805 1,745 1,371 Total Receivables 926 930 1,112 744 601Inventory 172 374 430 459 407 Inventory 202 236 242 190 205Prepaid Expenses 0 0 0 0 0 Prepaid Expenses 0 0 0 0 0

Total Current Assets 1,663 3,674 3,868 3,752 2,824 Total Current Assets 1,306 1,892 1,583 1,086 883Net PPE 17,926 30,996 35,847 38,564 40,547 Net PPE 5,704 7,144 9,102 11,536 12,257

Total Assets 30,717 68,245 75,185 83,049 84,104 Total Assets 8,947 10,959 12,863 14,600 14,928Liabilities and Equity Liabilities and Equity

Accounts Payable 728 1,248 1,676 1,588 1,324 Accounts Payable 1,049 1,134 1,255 875 605Accrued Expenses 737 513 565 637 695 Accrued Expenses 41 77 140 128 130Short‐Term Debt 668 621 979 386 0 Short‐Term Debt 0 0 0 1,055 546

Total Current Liab. 4,529 5,228 6,075 6,362 4,065 Total Current Liab. 1,889 1,570 1,706 2,336 1,580Long‐Term Debt 14,356 32,001 34,003 40,150 42,466 Long‐Term Debt 3,516 4,804 6,045 6,004 6,695

Total Liabilities 22,149 44,145 46,900 48,623 48,701 Total Liabilities 5,500 6,496 7,864 8,482 8,430Preferred Equity 0 0 0 0 0 Preferred Equity 0 0 0 0 0Common Stock & APIC 3,439 14,927 14,489 36,199 41,683 Common Stock & APIC 3,386 4,406 4,882 5,831 6,215Retained Earnings (3) (943) (1,372) (2,106) (6,103) Retained Earnings 0 0 0 0 0Treasury Stock 0 0 0 0 0 Treasury Stock 0 0 0 0 0Total Common Equity 3,321 13,866 13,093 34,076 35,119 Total Common Equity 3,334 4,306 4,824 5,739 6,102

Total Equity 8,568 24,100 28,285 34,426 35,403 Total Equity 3,447 4,464 4,999 6,119 6,497Total Liab. and Equity 30,717 68,245 75,185 83,049 84,104 Total Liab. and Equity 8,947 10,959 12,863 14,600 14,928

Income Statement Highlights

Balance Sheet Highlights

Income Statement Highlights

Balance Sheet Highlights

1. Margins and Profitability KMI, Page 2 of 17 Copyright Robert A. Weigand, Ph.D., 2016

KMI Kinder Morgan, Inc. OKS ONEOK Partners, L.P.Profit Margins 2011 2012 2013 2014 2015 Profit Margins 2011 2012 2013 2014 2015Gross Profit Margin 40.0% 52.3% 47.7% 48.0% 55.2% Gross Profit Margin 13.9% 16.1% 13.9% 17.3% 27.3%Operating Profit Margin 17.3% 29.8% 27.7% 27.6% 28.6% Operating Profit Margin 8.3% 9.4% 7.5% 9.4% 13.9%Net Profit Margin 7.5% 3.2% 8.5% 6.3% 1.8% Net Profit Margin 6.0% 6.5% 4.4% 4.6% 2.5%Free Cash Flow Margin N/A ‐110.8% ‐12.7% 6.6% ‐3.7% Free Cash Flow Margin N/A ‐9.0% ‐5.7% ‐9.7% 3.2%

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2011 2012 2013 2014 2015

Gross Profit Margin Operating Profit Margin

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Gross Profit Margin KMI OKS

0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%

2011 2012 2013 2014 2015

Operating Profit Margin KMI OKS

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

2011 2012 2013 2014 2015

Net Profit Margin KMI OKS

Analyst Comments: Gross Profit Margin: Gross profit margin shows gross profit as a percentage of revenue. Kinder Morgan's gross profit is in an uptrend from 2013 to 2015, increasing from 47.7% to 55.2%. Despite this uptrend, KMI's gross profit is still below the industry average of 55.7% according to Yahoo Finance. OKS's Gross Margin is also uptrending from 2013 to 2015, increasing from 13.9% to 27.3%. The increase in KMI and OKS's gross profit margin in 2015 signals that revenues are growing slower than gross profit or equivalently Ggross profit is growing faster than revenues. KMI is outperforming OKS every year, indicating that a greater percentage of revenue is avaliable to flow toward KMI's bottom line profits, free cash flow that supports the firms intrinsic value, and back to investors in the form of dividends.

Operating Profit Margin: Operating profit margin illustrates operating profit as a percentage of revenue. KMI's operating profit margin remains fairly constant from 2012 to 2015, over the course of these 4 years the profit margin only falls 1.2% from 29.8% to 28.6%. OKS's Operating Profit Margin is on an uptrend from 7.5% in 2013 to 13.9% in 2015. KMI is outperforming OKS every year. KMI's uptrend signals that there is more cash avaliable to flow toward bottom line profits, free cash flow that supports the firm's intrinsic value, and back to the investors in the form of dividends.

Net Profit Margin: Net profit margin expresses net income as a percentage of total revenues. KMI shows a downward trend from 8.5% in 2013 to 1.8% in 2015, where revenues are growing faster than net income. OKS's Net Profit Margin shows a downtrend from 6.5% in 2012 to 4.4% in 2013, with a slight uptick to 4.6% in 2014, then continues its downtrend to 2.5% in 2015. KMI outpreforms OKS in every year except 2012 and 2015. Low profit margins indicate that neither KMI's nor OKS's profits are flowing to the bottom line effienctly. According to Morningstar "Results were driven by a decrease in CO2 segment and higher interest expense partially offset by higher earnings in natural gas and product pipeline segments." KMI's net income decrease in 2015 can be attributed to a increase in the effective tax rate due to the acquisition of EPC and unusual expenses (litigation expenses).

Conclusion: Overall, KMI's gross profit margin and operating profit margin are in a recent uptrend, while KMI's net profit margin is in a significant downtrend. Indicating that KMI is not as efficient at making revenues flow to the bottom line. KMI's revenues are growing faster than their net profit margin as growth in expenses has outpaced revenue growth. KMI's low gross and operating margins indicate that a smaller precentage of revenue is available to flow toward bottom‐line profits, free cash flow that supports a firm's intrinsic value, and back to investors in the form of divdiends. KMI's net profit margin shrinks from 7.5% in 2011 to 1.8% in 2015, which shows that KMI's profits are not

‐120.0%‐100.0%‐80.0%‐60.0%‐40.0%‐20.0%0.0%20.0%

2012 2013 2014 2015

Free Cash Flow Margin KMI OKS


KMI Kinder Morgan, Inc. OKS ONEOK Partners, L.P.Profitability Ratios 2011 2012 2013 2014 2015 Profitability Ratios 2011 2012 2013 2014 2015Net Profit Margin 7.5% 3.2% 8.5% 6.3% 1.8% Net Profit Margin 6.0% 6.5% 4.4% 4.6% 2.5%× Total Asset Turnover 0.3 0.1 0.2 0.2 0.2 × Total Asset Turnover 1.3 0.9 0.9 0.8 0.5= Return on Assets 1.9% 0.5% 1.6% 1.2% 0.3% = Return on Assets 7.6% 6.0% 4.1% 3.9% 1.3%× Equity Multiplier 3.6 2.8 2.7 2.4 2.4 × Equity Multiplier 2.6 2.5 2.6 2.4 2.3= Return on Equity 6.9% 1.3% 4.2% 3.0% 0.7% = Return on Equity 19.8% 14.8% 10.6% 9.3% 3.0%

0%1%2%3%4%5%6%7%8%

2011 2012 2013 2014 2015

Return on Assets Return on Equity

0%

5%

10%

15%

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25%

2011 2012 2013 2014 2015

Return on Assets Return on Equity

0.00.20.40.60.81.01.21.4

2011 2012 2013 2014 2015

Total Asset Turnover KMI OKS

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

2011 2012 2013 2014 2015

Return on Assets KMI OKS

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2011 2012 2013 2014 2015

Return on Equity KMI OKS

Analyst Comments: Total Asset Turnover: The total asset turnover is the percentage of revenue that is generated by total assets. Kinder Morgan is experiencing a downtrend from 2011 to 2012,while staying relatively constant from 2013 to 2015. ONEOK is in a downtrend from 2011 through 2015, and outperforming Kinder Morgan every year. The downtrend signals that Kinder Morgan is generating fewer revenues per dollar of assets compared to ONEOK.

Return on Assets: Return on assets is net income as a percentage of assets. Kinder Morgan's ROA is in a downtrend from 1.6% in 2013 to 0.30% in 2015 due to a decrease in net profit margin and total asset turnover holding constant during this time. ONEOK's ROA shows a downtrend from 7.6% in 2011 to 3.9% in 2014, then decreasing more noticeably to 1.3% in 2015. While ONEOK is in a constant downtrend, they are still outperforming Kinder Morgan each year. ONEOK's performance above Kinder Morgan from 2012 to 2014, shows that ONEOK is generating more net income per dollar of assets.

Return on Equity: Return on equity is net income as a percentage of shareholder's equity. Kinder Morgan's ROE is in a downtrend from 2013 to 2015 due to a decrease in net profit margin and the equity multiplier , while total asset turnover remains relatively constant. ONEOK's ROE shows a downtrend from 2011 through 2015 and outperforms Kinder Morgan every year. ONEOK's outperformance of Kinder Morgan every year from 2011 to 2015 illustrates that Kinder Morgan is expressing less dollars of profit relative to the capital contributions by shareholders than ONEOK every year.

Conclusion: Overall, Kinder Morgan's return on assets and return on equity are in a downtrend from 2013 to 2015 due to a decrease in net income. With a decreasing net profit marign and a low total asset turnover, the decrease of ROA and ROE signals that KMI is generating less net income per dollar of assets and equity.

0.00.51.01.52.02.53.03.54.0

2011 2012 2013 2014 2015

Equity Multiplier KMI OKS


KMI Kinder Morgan, Inc. OKS ONEOK Partners, L.P.Multiples and Yields 2011 2012 2013 2014 2015 Multiples and Yields 2011 2012 2013 2014 2015Price/Earnings 38.3 101.7 31.3 46.9 129.0 Price/Earnings 17.2 17.8 22.4 17.0 41.3Price/Book 0.7 0.5 0.5 0.6 0.4 Price/Book 1.3 1.1 0.9 0.7 0.5Price/Free Cash Flow N/A N/A N/A 45.2 N/A Price/Free Cash Flow N/A N/A N/A N/A 32.9Earnings Yield 2.6% 1.0% 3.2% 2.1% 0.8% Earnings Yield 5.8% 5.6% 4.5% 5.9% 2.4%Dividend Yield 3.3% 4.0% 4.4% 4.1% 10.8% Dividend Yield 4.1% 5.0% 5.5% 7.7% 10.5%

0.020.040.060.080.0100.0120.0140.0

2012 2013 2014 2015


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12.0%

2012 2013 2014 2015

Earnings Yield Dividend Yield

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%

2012 2013 2014 2015

Earnings Yield KMI OKS

Analyst Comments: Price to earnings ratio: The price to earnings ratio expresses the stock price as a multiple of its earnings over the past 12 trailing months. Kinder Morgan's P/E ratio is increasing, throughout all years, the P/E ratio is 38.3 in 2011 increasing to 129 in 2015, is outside the reasonable range of 12‐18. The rise in Kinder Morgan’s P/E ratio is due to a decreasing stock price in 2015 and a even larger decline in earnings per share. This indicates potential concern for possible overvaluation.

Earnings yield: The earnings yield, the reciprocal of its P/E ratio, expresses EPS as a percentage of the stock price. Kinder Morgan's earnings yield is in a downward trend from 2.6% in 2011 and dropping out at .8% in 2015 as the stock price grows faster than its earnings. Oneok's earnings yield is in a downward trend from 5.8% in 2011 to 2.4% in 2015 the stock price grows faster than earnings. Kinder Morgan and Oneok's lower earnings yield indicate that the market is pricing their stock more expensive relative to its earnings.

Dividend yield: Dividend yield expresses the annual dividend per share as a percentage of the stock price. Kinder Morgan's increase in dividend yield from 2011 to 2015, shows that the market is pricing the stock cheaper relative to its dividend per share as DPS grows faster than the stock price. The sharp increase in Kinder Morgan’s dividend yield in 2015 is due to a sharp decrease in stock price. Oneok's dividend yield is also in an uptrend from 2011 to 2015, with an aggressive uptick in 2015 to 10.5%. Both firms are in an uptrend from 2012 to 2015 were both firms surpass 10% which is significantly above our 2% benchmark for strong dividend payers.

Conclusion: Kinder Morgan P/E ratio is above the reasonable range of 12‐18 were earnings decline faster that the stock price indicating concerns about a possible overvaluation. Kinder Morgan's dividend yield rises above 4.1% reaching a peak of 10.8% in 2015 which is well above our preference of 2% benchmark for strong dividend payers.

0.05.010.015.020.025.030.035.040.045.0

2012 2013 2014 2015


0.020.040.060.080.0100.0120.0140.0

2012 2013 2014 2015

Price to Earnings KMI OKS

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Price to Book KMI OKS

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Price to Free Cash Flow KMI OKS

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Dividend Yield KMI OKS

2. Relative Valuation and Debt KMI, Page 5 of 17 Copyright Robert A. Weigand, Ph.D., 2016

KMI Kinder Morgan, Inc. OKS ONEOK Partners, L.P.Liquidity and Debt 2011 2012 2013 2014 2015 Liquidity and Debt 2011 2012 2013 2014 2015Current Ratio 0.37 0.70 0.64 0.59 0.69 Current Ratio 0.69 1.20 0.93 0.46 0.56Quick Ratio 0.33 0.63 0.57 0.52 0.59 Quick Ratio 0.58 1.05 0.79 0.38 0.43Days Sales Outstanding 42.87 49.85 46.82 39.25 34.74 Days Sales Outstanding 29.86 33.34 34.21 22.29 28.28Inventory Turnover 46.18 26.67 32.72 35.35 35.39 Inventory Turnover 56.00 43.17 48.97 64.18 37.90Total Debt to Assets 48.9% 47.8% 46.5% 48.8% 50.5% Total Debt to Assets 39.3% 43.8% 47.0% 48.4% 48.5%Long‐Term Debt to Equity 432.3% 230.8% 259.7% 117.8% 120.9% Long‐Term Debt to Equity 105.4% 111.6% 125.3% 104.6% 109.7%Times Interest Earned 1.96 2.08 2.30 2.48 2.00 Times Interest Earned 4.26 4.97 4.31 4.28 3.19

0.00.10.20.30.40.50.60.70.8

2011 2012 2013 2014 2015

Current Ratio Quick Ratio

0.00.20.40.60.81.01.21.4

2011 2012 2013 2014 2015

Current Ratio Quick Ratio

0.00.20.40.60.81.01.21.4

2011 2012 2013 2014 2015

Current Ratio KMI OKS

Analyst Comments: Current Ratio: The current ratio measures the firm’s ability to meet short term obligations. Kinder Morgan current ratio has been increasing from 2011 to 2012 from .37 to .7 with a corresponding decrease from 2013 to 2014 from .64 to .59 with an increase in 2015 to .69. Oneok has been in an uptrend from 2011 to 2013, and has been higher than Kinder Morgan over this period. Both companies are below 1.0 from 2011 to 2015 meaning these companies might not be able to meet their short term obligations. Total Debt to Assets: Total debt to assets is the percentage of total debt to total assets. Kinder Morgan’s total debt to assets have been decreasing from 49.85 in 2012 to 34.74 in 2015, having a higher ratio than Oneok until 2013. Kinder Morgan’s high ratio expresses that Kinder Morgan is incurring more debt to finance to acquire assets.Conclusion: Both Kinder Morgan and Oneok are maintaining a current ratio below 1.0 which illustrates that both companies may not be able to meet their short term obligations. Kinder Morgan 's increasing total debt to assets can be attributed to their increase in debt to fund acquisitions.

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Total Debt to Assets KMI OKS

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Days Sales Outstanding Inventory Turnover

0.010.020.030.040.050.060.070.0

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Total Debt to Assets Long-Term Debt to Equity

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Total Debt to Assets Long-Term Debt to Equity

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Long-Term Debt to Equity KMI OKS

2. Relative Valuation and Debt KMI, Page 6 of 17 Copyright Robert A. Weigand, Ph.D., 2016

KMI Kinder Morgan, Inc. OKS ONEOK Partners, L.P.Total Invested Capital 2011 2012 2013 2014 2015 Total Invested Capital 2011 2012 2013 2014 2015Total Cash and ST Investments 414 723 685 458 341 Total Cash and ST Investments 35 537 135 43 5+ Receviables 933 1,362 1,805 1,745 1,371 + Receviables 926 930 1,112 744 601+ Inventory 172 374 430 459 407 + Inventory 202 236 242 190 205− Accounts Payable 728 1,248 1,676 1,588 1,324 − Accounts Payable 1,049 1,134 1,255 875 605− Accrued Expenses 737 513 565 637 695 − Accrued Expenses 41 77 140 128 130= Net Oper. Working Capital 54 698 679 437 100 = Net Oper. Working Capital 73 493 94 (26) 76+ Net Property, Plant & Equip. 17,926 30,996 35,847 38,564 40,547 + Net Property, Plant & Equip. 5,704 7,144 9,102 11,536 12,257= Total Invested Capital 17,980 31,694 36,526 39,001 40,647 = Total Invested Capital 5,777 7,637 9,196 11,510 12,333÷ Total Weighted Shares 707 907 1,036 1,137 2,187 ÷ Total Weighted Shares 204 217 225 243 267= Total Invested Capital/Share $25.43 $34.94 $35.26 $34.30 $18.59 = Total Invested Capital/Share $28.35 $35.17 $40.93 $47.31 $46.14

KMI Kinder Morgan, Inc. OKS ONEOK Partners, L.P.NOPAT and Free Cash Flow 2011 2012 2013 2014 2015 NOPAT and Free Cash Flow 2011 2012 2013 2014 2015 Operating Income (EBIT) 1,377 2,974 3,892 4,479 4,117 Operating Income (EBIT) 940 956 889 1,142 1,076× (1−Effective Tax Rate) 44.6% 10.3% 21.6% 21.0% 73.1% × (1−Effective Tax Rate) 1.5% 1.1% 1.3% 1.4% 0.7%= Net Oper. Profit After Tax 763 2,666 3,052 3,540 1,109 = Net Oper. Profit After Tax 926 945 877 1,127 1,068− ∆ Total Invested Capital N/A 13,714 4,832 2,475 1,646 − ∆ Total Invested Capital N/A 1,860 1,559 2,314 823= Free Cash Flow N/A (11,048) (1,780) 1,065 (537) = Free Cash Flow N/A (914) (682) (1,187) 245 NOPAT per Share $1.08 $2.94 $2.95 $3.11 $0.51 NOPAT per Share $4.55 $4.35 $3.90 $4.63 $4.00 Free Cash Flow per Share N/A ($12.18) ($1.72) $0.94 ($0.25) Free Cash Flow per Share N/A ($4.21) ($3.04) ($4.88) $0.92

$0$5,000

$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000

2011 2012 2013 2014 2015

Net Property, Plant & Equip. Total Invested Capital

$0$2,000$4,000$6,000$8,000

$10,000$12,000$14,000

2011 2012 2013 2014 2015

Net Property, Plant & Equip. Total Invested Capital

$0.00

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$50.00

2011 2012 2013 2014 2015

Total Invested Capital per Share KMI OKS

($12,000)($10,000)($8,000)($6,000)($4,000)($2,000)

$0$2,000$4,000$6,000

2012 2013 2014 2015

Net Operating Profit After Tax Free Cash Flow

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

2012 2013 2014 2015

NOPAT per Share KMI OKS

($1,500)

($1,000)

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$0

$500

$1,000

$1,500

2012 2013 2014 2015

Net Operating Profit After Tax Free Cash Flow

Analyst Comments: Total invested capital: KMI's total invested capital is showing an uptrend from 2011 to 2015. KMI's total invested capital exceeds OKS's from 2013 to 2015. Kinder Morgan has had a substantial increase in Net PP&E from $17,926 to $40,547, while OKS’s Net PP&E increased at a less significant rate from $5,704 to $12,257.NOPAT/share: KMI's NOPAT/share has been in a upward trend from $2.94 2012 to $3.11 2014 until 2015, where NOPAT deceases while the number of shares increases as well. OKS's NOPAT/share decreases from 2011 to 2013, increasing in 2014, and starting to decrease again in 2015. The increase in NOPAT for KMI in 2012 can be attributed to a decrease in their tax rate from 44.6% in 2011 to 10.3% in 2012 showing an increase in tax efficiency, but the effective tax rate increases again to 21.6% in 2013 and 73.1% in 2015, while OKS has significantly lower tax rates every year showing a tax advantage.FCF/Share: KMI's FCF/share is negative in 2012, 2013 and 2015 when the change in total invested capital is greater than NOPAT. OKS's free cash flow/share decreases in 2012 to 2014, and starts increasing again in 2015. KMI's negative free cash flow/share signals that there is less free NOPAT to pay out to investors since it has been spent on acquiring new assets, and these newly acquired have yet to generate substantial revenues, and EBIT which feeds into NOPAT and FCF more directly.

3. Value Creation and DCF Model KMI, Page 7 of 17 Copyright Robert A. Weigand, Ph.D., 2016

KMI Kinder Morgan, Inc. OKS ONEOK Partners, L.P.Cost of Capital 2015 Weight % Cost Weighted % Cost of Capital 2015 Weight % Cost Weighted %Equity Capitalization $32,630 43.5% 7.342% 3.190% Equity Capitalization $8,053 52.7% 4.796% 2.525%+ Total Debt $42,466 56.5% 5.000% 0.762% + Total Debt $7,242 47.3% 5.000% 2.351%+ Preferred Stock $0 0.0% 0.000% 0.000% + Preferred Stock $0 0.0% 0.000% 0.000%= Value of All Securities $75,096 100.0% = Value of All Securities $15,295 100.0%Effective Tax Rate 73.06% Alternative RF Rate: Effective Tax Rate 0.69% Alternative RF Rate:Risk‐Free Rate 1.742% 1.742% Risk‐Free Rate 1.742% 1.742%Beta (5‐Yr) 0.800 Alternative Beta: 0.65869 Beta (5‐Yr) 0.436 Alternative Beta: 0.43629Market Risk Premium 7.0% 0.800 Market Risk Premium 7.0%CAPM Cost of Equity 7.342% CAPM Cost of Equity 4.796%

Weighted Average Cost of Capital: 3.952% Weighted Average Cost of Capital: 4.876%3.952% 3.952% 3.952% 3.952% 3.952%

KMI Kinder Morgan, Inc. OKS ONEOK Partners, L.P.ROIC, EVA and MVA 2011 2012 2013 2014 2015 ROIC, EVA and MVA 2011 2012 2013 2014 2015

Return on Invested Capital 4.2% 8.4% 8.4% 9.1% 2.7% Return on Invested Capital 16.0% 12.4% 9.5% 9.8% 8.7% Economic Value‐Added 53 1,414 1,609 1,999 ‐497 Economic Value‐Added 645 573 429 565 467 Market Valued‐Added 19,423 18,178 24,203 14,030 ‐2,489 Market Valued‐Added 8,434 7,417 7,005 3,903 1,951 EVA per Share $0.07 $1.56 $1.55 $1.76 ($0.23) EVA per Share $3.16 $2.64 $1.91 $2.32 $1.75 MVA per Share $27.47 $20.04 $23.36 $12.34 ($1.14) MVA per Share $41.38 $34.16 $31.18 $16.04 $7.30

‐$0.50$0.00$0.50$1.00$1.50$2.00$2.50$3.00$3.50

2011 2012 2013 2014 2015

EVA per Share KMI OKS

‐5,00005,00010,00015,00020,00025,00030,000

‐1,000‐500

0500

1,0001,5002,0002,500

2011 2012 2013 2014 2015

Economic Value-Added Market Valued-Added

01,0002,0003,0004,0005,0006,0007,0008,0009,000

0100200300400500600700

2011 2012 2013 2014 2015

Economic Value-Added Market Valued-Added

Analyst Comments: ROIC: Return on invested capital measures how much NOPAT a firm generates per dollar of invested capital. KMI experiences an upward trend in ROIC from 4.2% in 2011 to 9.1% in2014, but it decreases significantly to 2.7% in 2015. OKS's ROIC decreases from 16% in 2012 to 8.7% in 2014, OKS outperform KMI from 2011 to 2015 generating more NOPAT per dollar of total invested capital. KMI is experiencing a decrease in how much NOPAT has been generated per dollar of invested capital. KMI's ROIC did not beat the WACC in 2015 meaning KMI is not in a position to generate value. EVA/share: EVA/share measures how much economic value a firm has created on a year‐by‐year basis per share. KMI's EVA/share is in upward trend from 2011 to 2014, showing that NOPAT KMI generates is higher than the cost of capital, but decreasing significantly to ‐$.23 in 2015. OKS's EVA per share is on a downward trend, signaling less economic profit is being created on a per share basis. To conclude, KMIs EVA decrease in 2015 expresses that total invested capital increased as well as an increase in the number of shares, less economic profit has been created. Conclusion: The Beta has been adjusted to .8 to stress out the model and allow for mean reversion. With a beta closer to the mean of .8, a WACC of 3.95%, an increase in total invested capital, and an increase in the number of share; EVA decreases significantly showing how much economic profit KMI destroyed in 2015. Value destruction is confirmed by the ROIC‐WACC spread where KMI's ROIC decrease to 2.7% below the 3.95% WACC.

0.0%2.0%4.0%6.0%8.0%

10.0%12.0%14.0%16.0%18.0%

2011 2012 2013 2014 2015

Return on Invested Capital KMI OKS

0%

2%

4%

6%

8%

10%

2011 2012 2013 2014 2015

Return on Invested Capital Return on Equity

0%

5%

10%

15%

20%

25%

2011 2012 2013 2014 2015

Return on Invested Capital Return on Equity


Long‐Term Growth Rate: Long‐Term Growth Rate:KMI Kinder Morgan, Inc. 1.0% OKS ONEOK Partners, L.P.

Intrinsic Value Model 2011 2012 2013 2014 2015 Intrinsic Value Model 2011 2012 2013 2014 2015 PV of Future FCFs ‐27,514 ‐17,553 ‐16,467 ‐18,183 ‐18,365 PV of Future FCFs 1,834 2,838 3,659 5,024 5,024+ Value of Non‐Oper. Assets 411 714 598 315 229 + Value of Non‐Oper. Assets 35 537 135 43 5= Total Intrinsic Firm Value ‐27,103 ‐16,839 ‐15,869 ‐17,868 ‐18,136 = Total Intrinsic Firm Value 1,869 3,375 3,793 5,066 5,029− Total Debt 15,024 32,622 34,982 40,536 42,466 − Total Debt 3,516 4,804 6,045 7,060 7,242= Intrinsic Value of Equity ‐42,127 ‐49,461 ‐50,851 ‐58,404 ‐60,602 = Intrinsic Value of Equity ‐1,646 ‐1,429 ‐2,252 ‐1,993 ‐2,213÷ Total Weighted Shares 707 907 1,036 1,137 2,187 ÷ Total Weighted Shares 204 217 225 243 267= Per Share Intrinsic Value ‐$59.59 ‐$54.53 ‐$49.08 ‐$51.37 ‐$27.71 = Per Share Intrinsic Value ‐$8.08 ‐$6.58 ‐$10.02 ‐$8.19 ‐$8.28vs. Year‐End Stock Price $32.17 $35.33 $36.00 $42.31 $14.92 vs. Year‐End Stock Price $57.74 $53.99 $52.65 $39.63 $30.13 Over (Under) Valuation/Share $91.76 $89.86 $85.08 $93.68 $42.63 Over (Under) Valuation/Share $65.82 $60.57 $62.67 $47.82 $38.41 % Over (Under) Valued ‐154.0% ‐164.8% ‐173.3% ‐182.4% ‐153.8% % Over (Under) Valued ‐814.9% ‐920.6% ‐625.3% ‐583.8% ‐464.0%

‐$80‐$60‐$40‐$20$0$20$40$60

2011 2012 2013 2014 2015

Year-End Stock Price Per Share Intrinsic Value

‐185%‐180%‐175%‐170%‐165%‐160%‐155%‐150%‐145%‐140%‐135%

$0

$20

$40

$60

$80

$100

2011 2012 2013 2014 2015

$ Over (Under) Valued % Over (Under) Valued

‐$20‐$10$0

$10$20$30$40$50$60$70

2011 2012 2013 2014 2015


‐1000%

‐800%

‐600%

‐400%

‐200%

0%

$0$10$20$30$40$50$60$70

2011 2012 2013 2014 2015


‐$10

$0

$10

$20

$30

$40

$50

2011 2012 2013 2014 2015

MVA per Share KMI OKS

Analyst Comments:MVA/share: MVA/share measures value creation over the entire life time of the firm. KMI's MVA/share is in a downward trend from $27.47 in 2011 to ‐$1.14 in 2015. OKS is in a downward trend from $41.38 in 2011 to $7.3 in 2015. OKS has a higher MVA/share than KMI, expressing a higher value of capital contributions to the firm by shareholders. Both firms are in a downward trend showing how genuine value creation decreases on a per share basis from 2011 to 2015.ROIC vs. WACC: KMI's ROIC is on a decreasing trend which is closing the gap between the ROIC and WACC, that can be attributed to the increases in total invested capital. The diminishing gap between ROIC and WACC signals that the firm is decreasing its ability to generate economic profit on its investments where in 2015 the WACC is greater than the ROIC due to a lower NOPAT and higher total invested capital signaling value destruction.Conclusion: KMI's MVA per share decline expresses how genuine value creation is destroyed in 2015. The increased total invested capital, and the decrease NOPAT in 2015 caused a lower return on the invested capital that decreased the ROIC‐WACC spread showing a decrease in KMI's ability to generate economic profit.

0%

2%

4%

6%

8%

10%

2011 2012 2013 2014 2015

Return on Invested Capital WACC


KMI Kinder Morgan, Inc. OKS ONEOK Partners, L.P.Piotroski Financial Fitness Scorecard 2012 2013 2014 2015 Piotroski Financial Fitness Scorecard 2012 2013 2014 2015Positive Net Income 1 1 1 1 Positive Net Income 1 1 1 1Positive Free Cash Flow 0 0 1 0 Positive Free Cash Flow 0 0 0 1Growing ROA (% change NI > % change TA) 0 1 0 0 Growing ROA (% change NI > % change TA) 0 0 0 0Earnings Quality (Operating Income > Net Income) 1 1 1 1 Earnings Quality (Operating Income > Net Income) 1 1 1 1Total Assets Growing Faster Than Total Liabilities 1 1 1 1 Total Assets Growing Faster Than Total Liabilities 1 0 1 1Increasing Liquidity (Current Ratio) 1 0 0 1 Increasing Liquidity (Current Ratio) 1 0 0 1% Change Shares Outstanding % change assets) 0 0 0 0Total Liabilities to Operating Cash Flow (EBIT)

31‐Dec‐11 31‐Dec‐12 31‐Dec‐13 31‐Dec‐14 31‐Dec‐15Kinder Morgan, Inc. KMI Energy Report Date:

Average2011 2012 2013 2014 2015 2011 ‐ 2015 2016E 2017E 2018E 2019E 2020E

Total Revenue 7,943 9,973 14,070 16,226 14,403 Total Revenue 14,619 14,985 15,284 15,513 15,669% growth N/A 25.6% 41.1% 15.3% ‐11.2% 16.0% % growth 1.5% 2.5% 2.0% 1.5% 1.0%

Gross Profit 3,174 5,214 6,705 7,791 7,951 Gross Profit 7,310 7,417 7,489 7,524 7,521Gross Margin (% of sales) 40.0% 52.3% 47.7% 48.0% 55.2% 48.6% Gross Margin (% of sales) 50.0% 49.5% 49.0% 48.5% 48.0%

Operating Income (EBIT) 1,377 2,974 3,892 4,479 4,117 Operating Income (EBIT) 4,093 4,121 4,127 4,111 4,074Operating Margin (% of sales) 17.3% 29.8% 27.7% 27.6% 28.6% 26.2% Operating Margin (% of sales) 28.0% 27.5% 27.0% 26.5% 26.0%

Earnings Before Tax 810 1,343 3,438 3,091 772Income Tax Expense 361 139 742 648 564 Forecasted Effective Tax Rate 20.0% 20.0% 20.0% 20.0% 20.0%

Effective Tax Rate 44.6% 10.3% 21.6% 21.0% 73.1% 34.1% Effective Tax Rate Adjustment 20.0% 20.0% 20.0% 20.0% 20.0%Net Income 594 315 1,193 1,026 253 Net Income 1,170 1,498 1,681 1,706 1,724

Net Margin (% of sales) 7.5% 3.2% 8.5% 6.3% 1.8% 5.4% Net Margin (% of sales) 8.0% 10.0% 11.0% 11.0% 11.0%Total Common Shares 707 907 1,036 1,137 2,187 Total Common Shares 2,143 2,111 2,090 2,080 2,069

% growth N/A 28.3% 14.2% 9.7% 92.3% 32.6% % growth ‐2.0% ‐1.5% ‐1.0% ‐0.5% ‐0.5%Earnings per Share $0.84 $0.35 $1.15 $0.90 $0.12 Earnings per Share $0.55 $0.71 $0.80 $0.82 $0.83Dividends per Share $1.05 $1.40 $1.60 $1.74 $1.61 Dividends per Share $0.48 $0.51 $0.61 $1.03 $1.05

% growth N/A 33.3% 14.3% 8.7% ‐7.8% 11.2% % growth ‐70.0% 5.0% 20.0% 70.0% 2.0%Year‐end Stock Price $32.17 $35.33 $36.00 $42.31 $14.92

996 997 998 999 1000 996 997 998 999 1000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020ECash + ST Investments 414 723 685 458 341 Cash + ST Investments 439 450 459 465 470

% of sales 5.2% 7.2% 4.9% 2.8% 2.4% 4.5% % of sales 3.0% 3.0% 3.0% 3.0% 3.0%Total Receivables 933 1,362 1,805 1,745 1,371 Total Receivables 1,711 1,753 1,788 1,815 1,833

% of sales 11.7% 13.7% 12.8% 10.8% 9.5% 11.7% % of salesInventory 172 374 430 459 407 Inventory 428 438 447 454 458

% of sales 2.2% 3.8% 3.1% 2.8% 2.8% 2.9% % of salesNet PPE 17,926 30,996 35,847 38,564 40,547 Net PPE 40,933 41,207 41,267 41,111 40,738

% of sales 225.7% 310.8% 254.8% 237.7% 281.5% 262.1% % of sales 280.0% 275.0% 270.0% 265.0% 260.0%Total Assets 30,717 68,245 75,185 83,049 84,104 Total Assets 85,521 86,910 87,884 88,427 88,528

% of sales 386.7% 684.3% 534.4% 511.8% 583.9% 540.2% % of sales 585.0% 580.0% 575.0% 570.0% 565.0%Payables and Accruals 1,465 1,761 2,241 2,225 2,019 Payables and Accruals 2,332 2,390 2,438 2,475 2,499

% of sales 18.4% 17.7% 15.9% 13.7% 14.0% 16.0% % of salesST Debt plus LT Debt 15,024 32,622 34,982 40,536 42,466 ST Debt plus LT Debt 43,126 44,054 44,783 45,299 45,596

% of sales 189.1% 327.1% 248.6% 249.8% 294.8% 261.9% % of sales 295.0% 294.0% 293.0% 292.0% 291.0%Total Equity 8,568 24,100 28,285 34,426 35,403 Total Equity 35,086 34,464 33,625 32,578 31,337

% of sales 107.9% 241.7% 201.0% 212.2% 245.8% 201.7% % of sales 240.0% 230.0% 220.0% 210.0% 200.0%

April 18, 2016Forecasted Income Statement Drivers

Forecasted Balance Sheet Drivers

Historical Income Statement Drivers

Historical Balance Sheet Drivers

Analyst Comments: Total Revenue Growth: The S&P is projecting total revenue growth of 3.81% in 2016, 5.4% in 2017, and 4.21% in 2018. The model above takes a conservative approach with forecasting total revenue growth of 1.5% in 2016, and tapering down the long term perpetual growth rate to 1% which reflects a margin of safety. Gross Profit Margin: S&P analysts are predicting that the gross margin is going to decrease to 54.42%, but expect them to rebound to 55.44% in 2017, yet the forecast takes a conservative approach. The starting point of 50% incorporated a margin of safety, and is tapered down to 48%. EBIT: Analyst at S&P predicted 29.72% operating margin in 2016, taking a conservative stand point and margin of safety it steadily decreases from 28% in 2016 to 26% in 2020. E‐Tax rate: S&P CIQ estimate a 20% effective tax rate from 2016 to 2020. The forecast assumes a constant 20% tax rate from 2016 to 2020. Net Income: Analyst are forecasting an increase in net income (S&P Capital IQ) from 10.61% in 2016, 12.05% in 2017, and 13.75% in 2018; however, the model reflects a more conservative forecast and shows it increasing from 8% in 2016 to 11% in 2020. The forecasting reflects an upward trend. The decrease in net profit margin in 2015 was due to the one‐time increase in the effective tax rate from the EPC acquisition. Total Common Shares: Kinder Morgan's 10‐k states that they are taking place in a repurchasing program, however there is no specified time frame for this but have been approved for $90 million to repurchase warrants. Due to the lack of a time frame the model reflects KMI slowly repurchasing common stock, and decreasing over the years.Dividend/share: There is a margin of safety and the model is conservative due to their past history of paying dividends. Analyst's reports states that KMI will cut their dividend in 2016 then increase the dividend incrementally over the following years. S&P is forecasting DPS of 0.50 in 2016, 0.51 in 2017, 0.63 in 2018, 1.11 in 2019, and in 1.93 by 2020. Cash: Due to a repurchasing program and reduction of debt forecasted, Cash remains constant at 3% from 2016 to 2020.Net PPE: Due to acquisitions and asset improvement efforts it is forecasted that net PPE will increase in 2016 above their historical average, and it is tapered down due to the assumption that the level of intentsity of investing in new infrastructure is reduced. Total Assets: Due to increasing Net PPE in 2016 forecasted total assets are expected to increase above the historical average. Starting above their historical average of 540.2% total assets is forecasted to be 585% 2016 decreasing to 565%in 2020. Debt & Equity: The forecast shows total debt of 295% and total equity of 240% and both are tapered down to 291% and 200% respectively due to KMI intentions of paying off debt and the repurchase program in the next 5 years.

4. Forecasting and Valuation KMI, Page 11 of 17 Copyright Robert A. Weigand, Ph.D., 2016

Kinder Morgan, Inc. Kinder Morgan, Inc.Total Invested Capital 2011 2012 2013 2014 2015 Total Invested Capital 2016E 2017E 2018E 2019E 2020E Cash and ST Investments 414 723 685 458 341 Cash and ST Investments 439 450 459 465 470+ Receviables 933 1,362 1,805 1,745 1,371 + Receviables 1,711 1,753 1,788 1,815 1,833+ Inventory 172 374 430 459 407 + Inventory 428 438 447 454 458− Payables and Accruals 1,465 1,761 2,241 2,225 2,019 − Payables and Accruals 2,332 2,390 2,438 2,475 2,499= Net Oper. Working Capital 54 698 679 437 100 = Net Oper. Working Capital 245 251 256 260 262+ Net Property, Plant & Equip. 17,926 30,996 35,847 38,564 40,547 + Net Property, Plant & Equip. 40,933 41,207 41,267 41,111 40,738= Total Invested Capital 17,980 31,694 36,526 39,001 40,647 = Total Invested Capital 41,178 41,458 41,523 41,370 41,001÷ Total Common Shares 707 907 1,036 1,137 2,187 ÷ Total Common Shares 2,143 2,111 2,090 2,080 2,069= Total Invested Capital/Share $25.43 $34.94 $35.26 $34.30 $18.59 = Total Invested Capital/Share $19.21 $19.64 $19.87 $19.89 $19.82

Kinder Morgan, Inc. Kinder Morgan, Inc.NOPAT and Free Cash Flow 2011 2012 2013 2014 2015 NOPAT and Free Cash Flow 2016E 2017E 2018E 2019E 2020E Operating Income (EBIT) 1,377 2,974 3,892 4,479 4,117 Operating Income (EBIT) 4,093 4,121 4,127 4,111 4,074× (1−Effective Tax Rate) 44.6% 10.3% 21.6% 21.0% 73.1% × (1−Effective Tax Rate) 20.0% 20.0% 20.0% 20.0% 20.0%= Net Oper. Profit After Tax 763 2,666 3,052 3,540 1,109 = Net Oper. Profit After Tax 3,275 3,297 3,301 3,289 3,259− ∆ Total Invested Capital N/A 13,714 4,832 2,475 1,646 − ∆ Total Invested Capital 531 280 65 (153) (370)= Free Cash Flow N/A (11,048) (1,780) 1,065 (537) = Free Cash Flow 2,744 3,016 3,236 3,442 3,629 NOPAT per Share $1.08 $2.94 $2.95 $3.11 $0.51 NOPAT per Share $1.53 $1.56 $1.58 $1.58 $1.58 Free Cash Flow per Share N/A ($12.18) ($1.72) $0.94 ($0.25) Free Cash Flow per Share $1.28 $1.43 $1.55 $1.66 $1.75

Historical Performance Forecasted Performance


Analyst Comments:FCF/Share: Kinder Morgan FCF shows an upward trend from 2016 to 2020 due to smaller changes in total invested capital that are smaller than NOPAT. There is more FCF that supports the firms intrinsic value.

ROIC: The forecasted ROIC greater than the WACC of 5.148% illustrates that KMI is still able to create value, but the forecasted ROIC is decreasing over time signaling a relatively small decrease in their ability to generate profit on investments.

$0$5,000$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Total Invested Capital Net Fixed Assets

$0$2,000$4,000$6,000$8,000$10,000$12,000$14,000$16,000$18,000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Total Revenue Operating Income (EBIT)

$0.00

$0.50

$1.00

$1.50

$2.00

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Earnings per Share Dividends per Share

0%

10%

20%

30%

40%

50%

60%

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E


0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%

0%

2%

4%

6%

8%

10%

12%

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Net Profit Margin Effective Tax Rate (right axis)

$0$5,000$10,000$15,000$20,000$25,000$30,000$35,000$40,000$45,000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Total Invested Capital Net Operating Working Capital


Kinder Morgan, Inc.Cost of Capital 2015 Weight % Cost Weighted % Kinder Morgan, Inc.Equity Capitalization $32,630 43.5% 6.642% 2.886%+ Total Debt $42,466 56.5% 5.000% 2.262% Year 2016E 2017E 2018E 2019E 2020E= Value of All Securities $75,096 100.0% Dividend Growth Rates ‐70.0% 5.0% 20.0% 70.0% 2.0%

Expected Future Dividends $0.48 $0.51 $0.61 $1.03 $1.05Effective Tax Rate 20.00% Alternative RF Rate:Risk‐Free Rate 1.742% 1.742% PV Dividends 1‐4 $2.19 Dividend Yield 2.7%Beta (5‐Yr) 0.700 Alternative Beta: 0.65869 PV Perpetual Div. $17.52Market Risk Premium 7.0% 0.700 Intrinsic Value $19.72 If Purchased For: $18.09CAPM Cost of Equity 6.642% Current Price $18.09 Expected Return = 9.0%

Weighted Average Cost of Capital: 5.148% ($18.09) $0.48 $0.51 $0.61 $23.69 $22.665.148% 5.148% 5.148% 5.148% 5.148% 5.148% 5.148% 5.148% 5.148% 5.148%

Kinder Morgan, Inc. Kinder Morgan, Inc.ROIC, EVA and MVA 2011 2012 2013 2014 2015 ROIC, EVA and MVA 2016E 2017E 2018E 2019E 2020E

Return on Invested Capital 4.2% 8.4% 8.4% 9.1% 2.7% Return on Invested Capital 8.0% 8.0% 8.0% 7.9% 7.9% Economic Value‐Added ‐162 1,035 1,172 1,532 ‐983 Economic Value‐Added 1,155 1,162 1,164 1,159 1,148 Market Valued‐Added 14,176 7,944 9,011 13,680 ‐2,773 Market Valued‐Added 3,686 7,248 8,524 10,071 11,896 EVA per Share ($0.23) $1.14 $1.13 $1.35 ($0.45) EVA per Share $0.54 $0.55 $0.56 $0.56 $0.55 MVA per Share $20.05 $8.76 $8.70 $12.03 ($1.27) MVA per Share $1.72 $3.43 $4.08 $4.84 $5.75

Perpetual Growth Rate: 1.0%Kinder Morgan, Inc. Kinder Morgan, Inc.DCF Intrinsic Value Model 2011 2012 2013 2014 2015 DCF Intrinsic Value Model 2016E 2017E 2018E 2019E 2020E PV of Future FCFs 55,856 69,780 75,152 77,956 82,506 PV of Future FCFs 84,009 85,318 86,474 87,484 88,358+ Cash and ST Investments 414 723 685 458 341 + Cash and ST Investments 439 450 459 465 470= Total Intrinsic Firm Value 56,270 70,503 75,837 78,414 82,847 = Total Intrinsic Firm Value 84,448 85,767 86,932 87,949 88,828− Total Debt 15,024 32,622 34,982 40,536 42,466 − Total Debt 43,126 44,054 44,783 45,299 45,596= Intrinsic Value of Equity 41,246 37,881 40,855 37,878 40,381 = Intrinsic Value of Equity 41,322 41,713 42,149 42,650 43,233÷ Total Common Shares 707 907 1,036 1,137 2,187 ÷ Total Common Shares 2,143 2,111 2,090 2,080 2,069= Per Share Intrinsic Value $58.34 $41.76 $39.44 $33.31 $18.46 = Per Share Intrinsic Value $19.28 $19.76 $20.17 $20.51 $20.89vs. Year‐End Stock Price $32.17 $35.33 $36.00 $42.31 $14.92 vs. Most Recent Stock Price $18.09 Over (Under) Valuation/Share ($26.17) ($6.43) ($3.44) $9.00 ($3.54) Over (Under) Valuation/Share ($1.19) % Over (Under) Valued ‐44.9% ‐15.4% ‐8.7% 27.0% ‐19.2% % Over (Under) Valued ‐6.2%

Forecasted Performance


Dividend Discount Valuation Model

Historical Performance

‐5,000

0

5,000

10,000

15,000

20,000

‐1,500‐1,000‐500

0500

1,0001,5002,000

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

EVA MVA (right axis)

Analyst Comments: EVA/Share: EVA per share is increasing from 2015 to 2016, where from 2017 to 2020 it remains stable based on the forecast. EVA future constant trend is showing that the cost of capital and the NOPAT the firm generates are projected to remain stable.Intrinsic Value: Intrinsic value over the forecasted period appears to be undervalued from 2015 to 2016. The beta has been adjusted to .7 to stress the model and allow for mean reversion. MVA/Share: MVA per share increases to $1,72 in 2016 expressing a increase in the value of capital contributions to the firm by shareholders. Genuine value creation increases in the forecasted model from $1.72 in 2016 to $5.75 in 2020.Conclusion: KMI's MVA per share increase expresses how genuine value creation increases from 2016 to 2020. With Total Invested Capital slowing down, ROIC shows a small decrease of .01% in 2020 due to NOPAT growing slower than total invested capital. KMI forecasted ROIC‐WACC spread remains stable from 2016 to 2020 showing an improvement in their ability to generate profit on its

($12,000)($10,000)($8,000)($6,000)($4,000)($2,000)

$0$2,000$4,000$6,000

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

NOPAT Free Cash Flow

($14)($12)($10)($8)($6)($4)($2)$0$2$4

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

NOPAT per Share Free Cash Flow per Share


Kinder Morgan, Inc. Kinder Morgan, Inc.Relative Valuation 2011 2012 2013 2014 2015 Relative Valuation 2016E 2017E 2018E 2019E 2020E

Price to Earnings 38.3 101.7 31.3 46.9 129.0 Price to Earnings 33.2 27.8 25.1 25.0 25.1 Price to Free Cash Flow N/A ‐2.9 ‐21.0 45.2 ‐60.8 Price to Free Cash Flow 14.1 13.8 13.0 12.4 11.9 Price to Sales 2.9 3.2 2.7 3.0 2.3 Price to Sales 2.7 2.8 2.8 2.7 2.8 Price to Book 0.7 0.5 0.5 0.6 0.4 Price to Book 0.5 0.5 0.5 0.5 0.5 Earnings Yield 2.6% 1.0% 3.2% 2.1% 0.8% Earnings Yield 3.0% 3.6% 4.0% 4.0% 4.0% Dividend Yield 3.3% 4.0% 4.4% 4.1% 10.8% Dividend Yield 2.7% 2.6% 3.0% 5.0% 5.0%


Analyst Comments:P/E ratio: KMI's 2016 P/E ratio is above the reasonable range of 12 to 18, and stays above the reasonable range from 2017 to 2020. KMI's forecasted P/E can be a warning sign of volatility when there isno faster expected future growth for KMI.Dividend yield: KMI's dividend yield decreases in 2016 (still above 2%) and starts increasing from 2017 to 2020 remaining above the 2% which is good based on our preference for strong dividend payerswhere the forecast shows a dividend yield of 5% in 2019 and 2020.

0%

2%

4%

6%

8%

10%

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

ROIC WACC

$0$10$20$30$40$50$60$70

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E


‐50%‐40%‐30%‐20%‐10%0%10%20%30%40%

‐$30‐$25‐$20‐$15‐$10‐$5$0$5$10$15

2011 2012 2013 2014 2015 2016E


‐100.0

‐50.0

0.0

50.0

100.0

150.0

2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Price to Earnings Price to Free Cash Flow

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E


0.00.10.20.30.40.50.60.70.8

0.00.51.01.52.02.53.03.5

2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Price to Sales Price to Book (right axis)


kmi kinder morgan, inc. energy sector: holdkmi kinder sector:morgan, inc. energy hold free cash flow...

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