Intrinsic value of Kinder Morgan - KMI

Previous Close

$18.55

  Intrinsic Value

$5.75

stock screener

  Rating & Target

str. sell

-69%

  Value-price divergence*

-81%

Previous close

$18.55

 
Intrinsic value

$5.75

 
Up/down potential

-69%

 
Rating

str. sell

 
Value-price divergence*

-81%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of KMI stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 41.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -9.34
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
Revenue, $m
  13,058
  13,998
  14,975
  15,991
  17,047
  18,145
  19,288
  20,478
  21,718
  23,009
  24,356
  25,760
  27,226
  28,757
  30,355
  32,026
  33,772
  35,598
  37,509
  39,508
  41,601
  43,792
  46,088
  48,492
  51,011
  53,651
  56,418
  59,319
  62,361
  65,551
  68,897
Variable operating expenses, $m
 
  11,487
  12,134
  12,807
  13,506
  14,234
  14,991
  15,779
  16,600
  17,455
  18,347
  17,063
  18,033
  19,047
  20,106
  21,213
  22,369
  23,579
  24,844
  26,169
  27,555
  29,006
  30,526
  32,119
  33,787
  35,536
  37,369
  39,291
  41,305
  43,418
  45,634
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  10,096
  11,487
  12,134
  12,807
  13,506
  14,234
  14,991
  15,779
  16,600
  17,455
  18,347
  17,063
  18,033
  19,047
  20,106
  21,213
  22,369
  23,579
  24,844
  26,169
  27,555
  29,006
  30,526
  32,119
  33,787
  35,536
  37,369
  39,291
  41,305
  43,418
  45,634
Operating income, $m
  2,962
  2,511
  2,841
  3,184
  3,541
  3,911
  4,297
  4,699
  5,118
  5,554
  6,008
  8,698
  9,193
  9,709
  10,249
  10,813
  11,403
  12,020
  12,665
  13,340
  14,046
  14,786
  15,561
  16,373
  17,223
  18,115
  19,049
  20,029
  21,056
  22,133
  23,262
EBITDA, $m
  5,171
  6,270
  6,708
  7,163
  7,636
  8,128
  8,640
  9,173
  9,728
  10,307
  10,910
  11,539
  12,196
  12,881
  13,597
  14,346
  15,128
  15,946
  16,802
  17,698
  18,635
  19,617
  20,645
  21,722
  22,850
  24,033
  25,272
  26,572
  27,934
  29,363
  30,862
Interest expense (income), $m
  2,050
  1,929
  2,090
  2,256
  2,428
  2,608
  2,794
  2,988
  3,190
  3,400
  3,619
  3,848
  4,086
  4,335
  4,595
  4,866
  5,150
  5,446
  5,756
  6,080
  6,419
  6,775
  7,147
  7,536
  7,944
  8,372
  8,820
  9,289
  9,782
  10,298
  10,839
Earnings before tax, $m
  1,638
  582
  751
  928
  1,112
  1,304
  1,503
  1,711
  1,928
  2,153
  2,389
  4,850
  5,106
  5,374
  5,654
  5,947
  6,253
  6,574
  6,909
  7,260
  7,627
  8,012
  8,415
  8,837
  9,279
  9,743
  10,230
  10,740
  11,274
  11,835
  12,423
Tax expense, $m
  917
  157
  203
  251
  300
  352
  406
  462
  520
  581
  645
  1,309
  1,379
  1,451
  1,527
  1,606
  1,688
  1,775
  1,865
  1,960
  2,059
  2,163
  2,272
  2,386
  2,505
  2,631
  2,762
  2,900
  3,044
  3,195
  3,354
Net income, $m
  708
  425
  548
  677
  812
  952
  1,097
  1,249
  1,407
  1,572
  1,744
  3,540
  3,728
  3,923
  4,128
  4,341
  4,565
  4,799
  5,043
  5,299
  5,568
  5,848
  6,143
  6,451
  6,774
  7,113
  7,468
  7,840
  8,230
  8,640
  9,069

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  684
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  80,305
  85,355
  91,312
  97,505
  103,944
  110,642
  117,611
  124,867
  132,424
  140,300
  148,510
  157,075
  166,013
  175,345
  185,093
  195,279
  205,928
  217,064
  228,713
  240,904
  253,666
  267,027
  281,021
  295,681
  311,042
  327,140
  344,014
  361,703
  380,251
  399,702
  420,101
Adjusted assets (=assets-cash), $m
  79,621
  85,355
  91,312
  97,505
  103,944
  110,642
  117,611
  124,867
  132,424
  140,300
  148,510
  157,075
  166,013
  175,345
  185,093
  195,279
  205,928
  217,064
  228,713
  240,904
  253,666
  267,027
  281,021
  295,681
  311,042
  327,140
  344,014
  361,703
  380,251
  399,702
  420,101
Revenue / Adjusted assets
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
Average production assets, $m
  43,061
  46,166
  49,388
  52,738
  56,221
  59,843
  63,613
  67,537
  71,625
  75,884
  80,325
  84,958
  89,792
  94,839
  100,112
  105,621
  111,381
  117,404
  123,705
  130,298
  137,201
  144,428
  151,997
  159,926
  168,234
  176,941
  186,067
  195,635
  205,667
  216,187
  227,221
Working capital, $m
  -2,695
  -728
  -779
  -832
  -886
  -944
  -1,003
  -1,065
  -1,129
  -1,196
  -1,266
  -1,340
  -1,416
  -1,495
  -1,578
  -1,665
  -1,756
  -1,851
  -1,950
  -2,054
  -2,163
  -2,277
  -2,397
  -2,522
  -2,653
  -2,790
  -2,934
  -3,085
  -3,243
  -3,409
  -3,583
Total debt, $m
  40,050
  42,657
  46,041
  49,559
  53,216
  57,021
  60,979
  65,100
  69,393
  73,866
  78,530
  83,395
  88,472
  93,772
  99,309
  105,095
  111,143
  117,468
  124,085
  131,010
  138,258
  145,848
  153,796
  162,123
  170,848
  179,991
  189,576
  199,623
  210,159
  221,206
  232,793
Total liabilities, $m
  45,874
  48,481
  51,865
  55,383
  59,040
  62,845
  66,803
  70,924
  75,217
  79,690
  84,354
  89,219
  94,296
  99,596
  105,133
  110,919
  116,967
  123,292
  129,909
  136,834
  144,082
  151,672
  159,620
  167,947
  176,672
  185,815
  195,400
  205,447
  215,983
  227,030
  238,617
Total equity, $m
  34,431
  36,873
  39,447
  42,122
  44,904
  47,797
  50,808
  53,943
  57,207
  60,609
  64,156
  67,856
  71,718
  75,749
  79,960
  84,361
  88,961
  93,772
  98,804
  104,071
  109,584
  115,356
  121,401
  127,734
  134,370
  141,324
  148,614
  156,256
  164,268
  172,671
  181,484
Total liabilities and equity, $m
  80,305
  85,354
  91,312
  97,505
  103,944
  110,642
  117,611
  124,867
  132,424
  140,299
  148,510
  157,075
  166,014
  175,345
  185,093
  195,280
  205,928
  217,064
  228,713
  240,905
  253,666
  267,028
  281,021
  295,681
  311,042
  327,139
  344,014
  361,703
  380,251
  399,701
  420,101
Debt-to-equity ratio
  1.163
  1.160
  1.170
  1.180
  1.190
  1.190
  1.200
  1.210
  1.210
  1.220
  1.220
  1.230
  1.230
  1.240
  1.240
  1.250
  1.250
  1.250
  1.260
  1.260
  1.260
  1.260
  1.270
  1.270
  1.270
  1.270
  1.280
  1.280
  1.280
  1.280
  1.280
Adjusted equity ratio
  0.424
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432
  0.432

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  708
  425
  548
  677
  812
  952
  1,097
  1,249
  1,407
  1,572
  1,744
  3,540
  3,728
  3,923
  4,128
  4,341
  4,565
  4,799
  5,043
  5,299
  5,568
  5,848
  6,143
  6,451
  6,774
  7,113
  7,468
  7,840
  8,230
  8,640
  9,069
Depreciation, amort., depletion, $m
  2,209
  3,759
  3,867
  3,979
  4,095
  4,217
  4,343
  4,474
  4,611
  4,753
  4,902
  2,841
  3,003
  3,172
  3,348
  3,532
  3,725
  3,927
  4,137
  4,358
  4,589
  4,830
  5,083
  5,349
  5,627
  5,918
  6,223
  6,543
  6,879
  7,230
  7,599
Funds from operations, $m
  4,612
  4,184
  4,415
  4,656
  4,907
  5,168
  5,440
  5,723
  6,018
  6,325
  6,646
  6,382
  6,731
  7,095
  7,476
  7,874
  8,290
  8,725
  9,181
  9,657
  10,156
  10,679
  11,226
  11,800
  12,401
  13,030
  13,691
  14,383
  15,109
  15,870
  16,668
Change in working capital, $m
  -175
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -158
  -166
  -174
Cash from operations, $m
  4,787
  4,233
  4,466
  4,709
  4,962
  5,226
  5,500
  5,785
  6,082
  6,392
  6,716
  6,455
  6,807
  7,175
  7,559
  7,961
  8,381
  8,820
  9,280
  9,761
  10,265
  10,793
  11,346
  11,925
  12,532
  13,168
  13,835
  14,534
  15,267
  16,036
  16,842
Maintenance CAPEX, $m
  0
  -1,440
  -1,544
  -1,652
  -1,764
  -1,880
  -2,001
  -2,128
  -2,259
  -2,395
  -2,538
  -2,686
  -2,841
  -3,003
  -3,172
  -3,348
  -3,532
  -3,725
  -3,927
  -4,137
  -4,358
  -4,589
  -4,830
  -5,083
  -5,349
  -5,627
  -5,918
  -6,223
  -6,543
  -6,879
  -7,230
New CAPEX, $m
  -2,882
  -3,105
  -3,222
  -3,350
  -3,483
  -3,623
  -3,770
  -3,924
  -4,088
  -4,260
  -4,441
  -4,632
  -4,834
  -5,048
  -5,272
  -5,509
  -5,759
  -6,023
  -6,301
  -6,594
  -6,902
  -7,227
  -7,569
  -7,929
  -8,308
  -8,707
  -9,126
  -9,568
  -10,032
  -10,520
  -11,033
Cash from investing activities, $m
  -1,705
  -4,545
  -4,766
  -5,002
  -5,247
  -5,503
  -5,771
  -6,052
  -6,347
  -6,655
  -6,979
  -7,318
  -7,675
  -8,051
  -8,444
  -8,857
  -9,291
  -9,748
  -10,228
  -10,731
  -11,260
  -11,816
  -12,399
  -13,012
  -13,657
  -14,334
  -15,044
  -15,791
  -16,575
  -17,399
  -18,263
Free cash flow, $m
  3,082
  -312
  -300
  -292
  -284
  -277
  -271
  -267
  -264
  -263
  -263
  -864
  -869
  -876
  -885
  -897
  -911
  -928
  -947
  -970
  -995
  -1,023
  -1,054
  -1,088
  -1,125
  -1,166
  -1,210
  -1,257
  -1,308
  -1,363
  -1,421
Issuance/(repayment) of debt, $m
  -1,431
  3,291
  3,384
  3,518
  3,657
  3,804
  3,959
  4,121
  4,293
  4,473
  4,664
  4,865
  5,077
  5,301
  5,537
  5,786
  6,048
  6,325
  6,617
  6,924
  7,248
  7,589
  7,949
  8,327
  8,725
  9,144
  9,584
  10,048
  10,535
  11,048
  11,587
Issuance/(repurchase) of shares, $m
  0
  2,017
  2,026
  1,998
  1,970
  1,942
  1,913
  1,885
  1,858
  1,830
  1,803
  160
  134
  108
  83
  59
  35
  12
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -1,357
  5,308
  5,410
  5,516
  5,627
  5,746
  5,872
  6,006
  6,151
  6,303
  6,467
  5,025
  5,211
  5,409
  5,620
  5,845
  6,083
  6,337
  6,617
  6,924
  7,248
  7,589
  7,949
  8,327
  8,725
  9,144
  9,584
  10,048
  10,535
  11,048
  11,587
Total cash flow (excl. dividends), $m
  1,727
  4,996
  5,109
  5,223
  5,343
  5,469
  5,601
  5,740
  5,886
  6,041
  6,204
  4,160
  4,342
  4,533
  4,735
  4,948
  5,172
  5,409
  5,669
  5,955
  6,253
  6,567
  6,895
  7,239
  7,600
  7,978
  8,375
  8,791
  9,227
  9,685
  10,165
Retained Cash Flow (-), $m
  688
  -2,442
  -2,574
  -2,675
  -2,782
  -2,893
  -3,011
  -3,134
  -3,265
  -3,402
  -3,547
  -3,700
  -3,861
  -4,032
  -4,211
  -4,400
  -4,600
  -4,811
  -5,033
  -5,266
  -5,513
  -5,772
  -6,045
  -6,333
  -6,636
  -6,954
  -7,289
  -7,642
  -8,013
  -8,403
  -8,812
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  2,554
  2,535
  2,548
  2,561
  2,575
  2,590
  2,605
  2,621
  2,638
  2,656
  460
  480
  502
  524
  547
  572
  599
  637
  688
  741
  794
  849
  906
  964
  1,024
  1,085
  1,149
  1,214
  1,282
  1,353
Discount rate, %
 
  8.90
  9.35
  9.81
  10.30
  10.82
  11.36
  11.93
  12.52
  13.15
  13.81
  14.50
  15.22
  15.98
  16.78
  17.62
  18.50
  19.43
  20.40
  21.42
  22.49
  23.61
  24.80
  26.03
  27.34
  28.70
  30.14
  31.65
  33.23
  34.89
  36.63
PV of cash for distribution, $m
 
  2,345
  2,121
  1,924
  1,730
  1,541
  1,358
  1,184
  1,020
  868
  729
  104
  88
  73
  60
  48
  38
  29
  23
  17
  13
  9
  6
  4
  3
  2
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  95.3
  91.2
  87.5
  84.2
  81.2
  78.6
  76.2
  74.1
  72.2
  70.4
  70.3
  70.2
  70.1
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0
  70.0

Kinder Morgan, Inc. operates as an energy infrastructure company in North America. It operates through Natural Gas Pipelines, CO2, Terminals, Products Pipelines, and Kinder Morgan Canada 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 (NGL) fractionation facilities and transportation systems; and liquefied natural gas facilities. The CO2 segment produces, transports, and markets CO2 for recovering crude oil from mature oil fields; and owns interests in/or operates oil fields and gas processing plants, as well as operates a crude oil pipeline system in West Texas. The Terminals segment owns and operates liquids and bulk terminals that transload and store refined petroleum products, crude oil, chemicals, and ethanol, as well as bulk products, including coal, petroleum coke, fertilizer, and steel and ore products; and owns tankers. The Products Pipelines segment owns and operates refined petroleum products, NGL, and crude oil and condensate pipelines; and associated product terminals and petroleum pipeline transmix facilities. The Kinder Morgan Canada segment owns and operates Trans Mountain pipeline system that transports crude oil and refined petroleum products from Edmonton, Alberta, and Canada to marketing terminals and refineries in British Columbia, Canada, and Washington; and jet fuel aviation turbine fuel pipeline that serves the Vancouver (Canada) International Airport. Kinder Morgan, Inc. owns interests in or operates approximately 84,000 miles of pipelines and 155 terminals. The company was formerly known as Kinder Morgan Holdco LLC and changed its name to Kinder Morgan, Inc. in February 2011. Kinder Morgan, Inc. was founded in 1936 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Kinder Morgan (KMI)

Valuation Ratios
P/E Ratio 58.4
Price to Sales 3.2
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 8.6
Price to Free Cash Flow 21.7
Growth Rates
Sales Growth Rate -9.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -26%
Cap. Spend. - 3 Yr. Gr. Rate -3.1%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 108.5%
Total Debt to Equity 116.3%
Interest Coverage 2
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 0.9%
Ret/ On T. Cap. - 3 Yr. Avg. 1%
Return On Equity 2%
Return On Equity - 3 Yr. Avg. 2.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 55.6%
Gross Margin - 3 Yr. Avg. 52.9%
EBITDA Margin 45.2%
EBITDA Margin - 3 Yr. Avg. 40.8%
Operating Margin 22.7%
Oper. Margin - 3 Yr. Avg. 22.3%
Pre-Tax Margin 12.5%
Pre-Tax Margin - 3 Yr. Avg. 12.3%
Net Profit Margin 5.4%
Net Profit Margin - 3 Yr. Avg. 4.5%
Effective Tax Rate 56%
Eff/ Tax Rate - 3 Yr. Avg. 50%
Payout Ratio 179.7%

KMI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KMI stock intrinsic value calculation we used $13058 million for the last fiscal year's total revenue generated by Kinder Morgan. The default revenue input number comes from 2016 income statement of Kinder Morgan. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our KMI stock valuation model: a) initial revenue growth rate of 7.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 8.9%, whose default value for KMI is calculated based on our internal credit rating of Kinder Morgan, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Kinder Morgan.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of KMI stock the variable cost ratio is equal to 83.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for KMI stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.9% for Kinder Morgan.

Corporate tax rate of 27% is the nominal tax rate for Kinder Morgan. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the KMI stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for KMI are equal to 329.8%.

Life of production assets of 29.9 years is the average useful life of capital assets used in Kinder Morgan operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for KMI is equal to -5.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $34431 million for Kinder Morgan - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 2223.24 million for Kinder Morgan is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Kinder Morgan at the current share price and the inputted number of shares is $41.2 billion.

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Stock chart of KMI Financial statements of KMI
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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