On Friday, Scotiabank updated its financial outlook on Kinetik Holdings, Inc. (NASDAQ:KNTK), increasing the price target to $42.00 from the previous $38.00. The firm has maintained a Sector Outperform rating on the stock. This adjustment follows Kinetik's recent announcement of an $840 million acquisition of Durango, a gathering and processing (G&P) company in the Northern Delaware region.
The transaction is set to bolster Kinetik's processing capacity by approximately 25%, which includes a plant currently under construction. The acquisition, coupled with the sale of GCX, is expected to not only reduce the company's leverage but also enhance its earnings. Moreover, the deal positions Kinetik as a prominent transporter of natural gas liquids (NGLs) across the Delaware area, adding over 60 million barrels per day with these transactions.
Kinetik's management team, noted for their extensive experience and track record in mergers and acquisitions, is seen as capable of navigating the potential risks associated with the transaction. The analyst predicts that the company's leverage, akin to investment-grade, and the anticipated earnings before interest, taxes, depreciation, and amortization (EBITDA) of around $1 billion post-deal, could justify a reevaluation of the stock's multiple.
Scotiabank has revised its fiscal year 2025 estimates to $1.07 billion, assuming an April operational start for one of the plants under construction. While these estimates are preliminary and subject to various risks such as deal closure, execution, and construction, the underlying accretion and the positive short-term outlook are seen as supportive of the increased price target.
The new stock price target is based on a 9.5 times multiple on the firm's initial fiscal year 2025 pro forma estimates.
InvestingPro Insights
As Kinetik Holdings, Inc. (NASDAQ:KNTK) embarks on strategic acquisitions to enhance its market position, real-time data from InvestingPro provides a snapshot of the company’s financial health and investor sentiment. With a market capitalization of $5.99 billion and a P/E ratio of 7.55, Kinetik showcases a robust valuation that reflects its earnings potential. The company’s moderate revenue growth of 6.42% over the last twelve months, as of Q1 2024, indicates a steady business expansion.
InvestingPro Tips highlight Kinetik’s significant dividend to shareholders, with a current yield of 7.7%, and a stock that trades with low price volatility, reinforcing the firm’s stability. Additionally, Kinetik has been operating with a moderate level of debt, which aligns with Scotiabank’s view of the company’s investment-grade leverage. Notably, the stock is trading near its 52-week high, at 96.31% of the peak, and has achieved a strong return over the last three months of 23.68%, signaling robust investor confidence.
For investors seeking deeper insights, InvestingPro offers additional tips on Kinetik Holdings, including its high EBIT and revenue valuation multiples, which could be of interest given the company's recent strategic moves. To explore these further, visit https://www.investing.com/pro/KNTK and consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, where you can find a total of 9 InvestingPro Tips that could help inform your investment decisions.
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