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Goldman Among Most Bullish Analysts On Kinder Morgan Merger

Analysts like the change, but most have already seen their price targets nearly met in recent spike

Shares of Kinder Morgan Inc (KMI - Get Report) soared following the news that it would consolidate the MLPs Kinder Morgan Energy Partners LP (KMP), Kinder Morgan Management, LLC (KMR) and El Paso Pipeline Partners, L.P. (EPB) back into a single company, and analysts have come down firmly in favor of the deal as well, though the new stock price already reflects that sentiment.

Kinder Morgan DB deal table 0814

Goldman Sachs most bullish on Kinder Morgan’s prospects

"The deal, which is effectively a ' reverse MLP,' will irrevocably eliminate the high IDR burden which has been lingering at KMP that resulted in its high cost of capital and limited growth," writes Deutsche Bank analysts Richard Cheng and Valerie Zhang, who set a $42 price target for Kinder Morgan Inc (KMI - Get Report) versus its current $38.50. "The key takeaway though is while KMI surrenders its IDR 'golden goose,' the deal enables the now single KM entity to improve total value proposition by having a lower cost of capital and substantial tax depreciation."

RBC Capital Markets analysts Elvira Scotto and TJ Schultz think the deal will create value for all the entities involved and expect it to be 2% accretive to Kinder Morgan Inc (KMI - Get Report)’s cash for dividends, but they set a price target of $40, only slightly above the current price.

Goldman Sachs analyst Theodore Durbin was more bullish, increasing his price target from $45 to $50, but he also said that he doesn't "take a view on the deal closing, which is still subject to a shareholder vote, and our estimate do not include the proposed acquisitions," meaning that if Kinder Morgan Inc (KMI - Get Report) does acquire the MLP he could push his price target up even further. Ending the MLPs could have harsh, and unplanned for, tax implications for shareholders, but it would still be surprising if the deal was voted down.

Comparing KMI with Perry Capital's MLP proposal

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KMP $102.03 1.98%
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