Kinder Morgan (KMI)

Total return at 5 years: 2.8%/year = -1.0% appreciation + 3.8% dividend. The target price ($33) is ex-dividend; the $6 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($34) and the other below.

Today — expensive, no margin of safety: at $34 trades ~7.9% above its value discounted to today (~$32); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($33) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$20.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($34) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-2.9%/year) than we project (4.5%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$4.8 bn of owner earnings in year 5 (vs ~$6.9 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on EV/EBITDA (suma de las partes por segmento). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Sum-of-the-parts model across the four segments (Natural Gas Pipelines, Products Pipelines, Terminals, CO2), each with a distinct economic nature (§1, §4). Year 0 is the TTM as of Jun-2026 ($16,283M revenue, $9,000M Adjusted EBITDA — already virtually in line with revised 2026 guidance), consistent with the method's rolling window. Year 1 starts at the company's own guidance: the Q2'26 8-K (Jul 22, 2026) reports that LTM Adjusted EBITDA already exceeds the original 2026 budget by >5% and Adjusted EPS exceeds it by >12%, so consolidated growth is anchored at +5.0% in year 1, decaying gently to +3.0% by year 5 (the ceiling of the §5 R2 utility/fee-based infrastructure band). Each segment is weighted by a share of the terminal metric (Natural Gas Pipelines 72%, Terminals 12%, Products Pipelines 11%, CO2 5%, approximating the relative weight observed in FY2025 EBDA with an upward adjustment for Natural Gas Pipelines given its faster contracted growth pace) and its own multiple (11x, 10x, 9.5x, and 8x respectively), whose weighted sum gives the base case's exit multiple (~10.6x), within the 9-12x EV/EBITDA band of the transportation-and-storage archetype — the constructor derives this blend from the pieces, it is not set by hand. Bear and Bull carry their own single multiple (8.5x and 12.5x respectively), compressing or expanding all four pieces evenly. Metric declaration: EV/EBITDA is used (not EV/EBIT nor owner earnings) as an explicit exception to the transportation-and-storage archetype from the method's general principle of never valuing by EBITDA — analogous to the already-recognized exception for airlines (EV/EBITDAR): in long regulatory-life pipeline infrastructure (40-60+ years), GAAP depreciation materially exceeds real maintenance capex, so EV/EBIT overstates the multiple truly paid by the market (empirically verified: KMI's implied EV/EBIT sits outside any reasonable band, while implied EV/EBITDA sits much closer to the 9-12x band). Capex is still fully charged in the second lens (DCF, owner earnings net of maintenance capex estimated at ~30% of total TTM capex, leaving ~70% as genuine growth funding the $9,600M backlog) and in the projections' FCF row — the investment is never given away, only its cost is moved to another visible place in the record. Cross-foot note: the sum of 10-K segment revenue ($16,969M FY25) exceeds consolidated XBRL revenue ($15,202M FY25) by 11.6% because segment revenue and EBDA include earnings from unconsolidated equity investments (TGP, NGPL, SNG, Citrus, among others), which appear in the consolidated statement as a single "earnings from equity investments" line. Segment data is therefore used only as relative weights among the sum-of-the-parts pieces, never as the year-model's absolute revenue level (which always anchors to consolidated XBRL). Cash cascade: retained excess cash is accumulated (accumulateCash: true) with real retention anchored to real TTM FCF and buyback (fcfLtm $3,158M, buybackLtm $0), consistent with management's target of lowering the net debt/EBITDA ratio from 3.8x to 3.6x — there is no material current buyback (0% in FY2025, after years of declining buybacks) that would justify its own sharesPath.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (EV falls as cash increases). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $33 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $34, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $33 in 5 years plus $6 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $32. Against the current market price ($34), the margin of safety is -7.9% (trades above the maximum → a premium is paid) and the total return at that price would be 2.8% annually.

• Multiple within band. The base case's blended EV/EBITDA (~10.6x) falls within the 9-12x band of the reference transportation-and-storage archetype.
• Moderate total return. The base case yields +3% annually, with the dividend contributing most of the total return.
• Dividend as the anchor of return. Dividend yield of 3.5%, growing ~2% annually, with solid coverage over FCF.
• Limited margin of safety. The current price is close to the base case's 5-year intrinsic value, leaving little cushion against an adverse scenario.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (134%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Predictable cash generation. Operating cash flow ($6,557M TTM) is stable year to year, backed by long-term capacity contracts.
• Return on capital. The ~32% EBIT margin reflects a capital-intensive fee-based business; return on real invested capital is moderate, typical of the regulated infrastructure archetype.
• Reinvestment runway. The $9,600 million backlog offers a visible reinvestment runway with already-contracted project returns (~5.6x project EBITDA in the first full year).
• Accounting distortion. GAAP D&A materially exceeds real maintenance capex due to the long regulatory useful life of pipelines, distorting EV/EBIT multiples upward.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Drivers are presented as levels (not rates), mixing the six-month average (H1 2025 and H1 2026, from the Q2'26 8-K) with the full-year level (FY2025, from the 10-K) to give three reference points per driver — the periodicity mix is explicitly declared because there is no published three-consecutive-year annual series for these specific volumes. The pattern is consistent: natural gas transportation and CO2 production grow, while refined products delivery and liquids terminal utilization decline slightly, reflecting the divergence between the highest-quality segment (Natural Gas Pipelines) and those with lower structural growth.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Concentrated growth driver. Natural Gas Pipelines (68% of EBDA) grows +12.7% year over year, well above Products and CO2.
• Structural natural gas demand. LNG, power generation, and data centers are tailwinds explicitly cited by the company and backed by the backlog.
• Declining segments. Products Pipelines and CO2 show negative EBDA growth FY25 vs FY24 (-0.6% and -10.7% respectively).
• Moderate consolidated growth. Growth decelerates from +5.0% to +3.0% by year 5 — typical of mature infrastructure, not a high-growth compounder.

• Mostly fee-based revenue. Take-or-pay reserved-capacity contracts reduce short-term sensitivity to actual volume transported.
• Contracted backlog with demand already committed. $9,600 million, 92% natural gas, with customers already under contract before capital is deployed.
• Mixed nature (sum of the parts). The CO2 segment mixes regulated infrastructure with direct crude/NGL price exposure, requiring different treatment and multiple.
• Residual cyclicality in Products and CO2. Crude/condensate (-16%) and refined products (-5%) volumes fell in the most recent reported quarter.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✕Leverage (net debt / EBITDA)Net debt / EBITDA 4.2x
• ✕Interest coverage (EBIT / interest)3.0x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 134% of ROIC
• ✕Value creation (ROIC − 10% bar)-4pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.4x
• !Float / working capitalConsumes cash $0.1 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.0% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Structural leverage. Net debt/adjusted EBITDA of 3.6x, at the low end of the company's target range but high in absolute terms.
• Dividend coverage. FCF after dividends was positive in H1'26 ($346M), showing cushion over the current payout.
• Cross-guarantee structure. KMI unconditionally guarantees the debt of virtually all of its wholly owned subsidiaries, limiting future funding flexibility.
• Short-term liquidity. Available cash is minimal ($89M); the company relies on recurring operating generation, not a cash cushion.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Founder alignment. Richard D. Kinder owns 11.6% of the company as an individual shareholder, an unusual level of skin in the game for a company of this scale.
• Capital discipline. The buyback was suspended when the multiple was unattractive, prioritizing the higher-return organic backlog and the dividend.
• Earnings communication. The earnings release breaks down the backlog, project return multiples, and segment variances with verifiable detail.
• Structural complexity. The cross-guarantee agreement between KMI and its subsidiaries is a complex financial structure that limits funding flexibility.

• There is no single collapse catalyst: this is not a "missing buyers" story from recent panic, but a mature business with normal analyst coverage.
• The energy transportation and storage sector structurally trades at lower EBITDA multiples than the broader market due to its capital intensity and leverage, not because the market is ignoring the business.
• Leverage (net debt/EBITDA 3.6x) and residual commodity exposure in the CO2 segment are real risks, not mispricings — the market price appears to reflect them reasonably.

No clear Marks-style perception-reality gap is identified: neither evident missing buyers (missing buyers) nor a motivated seller or one-off event overpunishing the price (motivated sellers). The base case yields +3% annually, consistent with Preserves value — the company trades No margin of safety: at this price capital is preserved, but it is not bought below its value., with no clear market edge beyond the discipline of the fundamental analysis itself.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -7%/year (-31% total): the margin of safety protects the downside. The bull (+10%/year, +60% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Regulatory risk. Backlog execution depends on timely FERC approvals (SSE4, MSX, Amarillo) and growing PHMSA compliance requirements.
• Commodity risk. The CO2 segment has direct —partially hedged— exposure to crude and NGL prices.
• Rate and refinancing risk. High leverage under the cross-guarantee raises the cost of funding in a higher-rate environment.
• Long-term demand risk. The energy transition and electrification could structurally reduce the hydrocarbon demand that sustains transported volumes.
• Tariff risk. Steel tariffs raise the cost of building and maintaining the network, with judicial uncertainty over their final scope.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 7% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical growing 5% at a multiple/growth of 3.1 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 7% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -3% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -12%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -3%, within what we project (5%) — the story squares with the numbers.