ET vs. KMI: Which Midstream Stock Has More Upside Potential for Now?

The companies operating in the Zacks Oil and Gas Production and Pipeline industry remain vital to meeting global energy needs, supported by ongoing economic expansion, industrial growth and increasing demand in emerging markets. While the transition to renewables is underway, hydrocarbons are still a major source of energy, which needs transportation, refining and storage before it reaches the end users. Innovations like horizontal drilling and advanced recovery methods are unlocking additional reserves, improving efficiency and production volumes, thereby enhancing the requirements of midstream services.

Pipeline networks are essential for the reliable and efficient movement of crude oil, natural gas and refined products across various regions. Their stable, fee-based business models and long-term agreements provide steady cash flows, helping shield operators from swings in commodity prices. Courtesy of increasing North America’s shale output, expanding export capacity and natural gas playing a major role in domestic electricity production, the need for midstream infrastructure is expected to rise.
 
Amid such a backdrop, let us compare Energy Transfer ET and Kinder Morgan KMI, two of the largest midstream energy companies in North America, operating vast networks of pipelines and storage facilities for natural gas, crude oil and natural gas liquids.
 
Energy Transfer presents an attractive investment case thanks to its extensive and diversified midstream network spanning natural gas, NGLs, crude oil and refined products. Supported by steady, fee-based cash flows, valuable export terminal access and prudent capital management, the firm is well-situated to capitalize on increasing U.S. energy output and rising global demand. Energy Transfer’s robust distribution yield, steady EBITDA expansion and ongoing debt-reduction initiatives further strengthen its profile as a compelling long-term option for both income and growth-oriented energy investors.

Kinder Morgan offers a steady investment proposition backed by its extensive midstream system, centered on natural gas and long-term, fee-based agreements that ensure consistent cash flows. As natural gas will play a major role in the ongoing transition in the utility space in electricity generation, Kinder Morgan, through its vast natural-gas pipeline and storage network, with prime exposure to the fast-growing Gulf Coast, is positioned for further growth. KMI remains an appealing choice for income-oriented investors looking for dependable returns with limited exposure to commodity price swings.

Let us focus on the fundamental factors of these two midstream giants and try to find which one presently has a better possibility to provide higher returns to investors.

ET & KMI’s Earnings Growth Projections

The Zacks Consensus Estimate for ET’s earnings per unit in 2025 and 2026 indicates year-over-year growth of 7.03% and 15.82%, respectively. Long-term (three to five years) earnings growth per unit is pegged at 12.45%.

The Zacks Consensus Estimate for Kinder Morgan’s earnings per share in 2025 and 2026 implies year-over-year growth of 10.43% and 5.12%, respectively. Long-term earnings growth per share is pegged at 8.95%.

Return on Equity

Return on equity (“ROE”) is an essential financial indicator that evaluates a company’s efficiency in generating profits from the equity invested by its shareholders. It demonstrates how well management is utilizing the capital provided to increase earnings and deliver value.
 
ET’s current ROE is 10.71% compared with KMI’s 8.57%. Both companies are currently underperforming the S&P 500 ’s ROE of 32.54%.

Debt to Capital

The Oil-Energy sector is a capital-intensive one, and huge investments are required at regular intervals to upgrade, maintain and expand operations. The usage of new evolving technology also requires investments. Therefore, the companies operating in the sector borrow from the market and add it to their internal cash generation to fund the long-term investments. 

ET’s current debt-to-capital currently stands at 58.19% compared with KMI’s 50.42%. Both companies are using higher debt to fund their business, as the debt usage is higher than the S&P 500’s debt-to-capital, which stands at 39.35%.

The Times Interest Earned Ratio of ET and KMI at the end of the previous reported quarter was 2.9 and 3, respectively, which indicates both have enough financial capacity to meet their interest obligation without any difficulties.

ET & KMI’s Dividend Yield

Dividends are recurring payments distributed by a company to its shareholders, offering investors a tangible return on their investment. They serve as a key indicator of a company’s financial strength and stability, often reflecting robust cash flow and steady earnings performance.

Currently, the yield for ET is 8.07%, while the same for Kinder Morgan is 4.36%.

Valuation

Energy Transfer currently appears to be trading at a discount compared with Kinder Morgan on a forward 12-month Price/Earnings basis.
 
ET is currently trading at 10.57X, while KMI is trading at 20.14X compared with the S&P 500’s 23.15X.

Summing Up

Energy Transfer and Kinder Morgan continue to strengthen their infrastructure networks to support operational expansion and ensure efficient hydrocarbon delivery from production hubs to end markets.

ET stands out with improving earnings projections, a higher dividend payout, stronger return on equity and a more attractive valuation, making it the more compelling pick in the oil and energy sector compared with KMI.

Energy Transfer currently has an edge over Kinder Morgan, despite both stocks carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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