Kinetik Holdings: Upgrading To A Strong Buy Following Q2 Earnings

Core Viewpoint - Kinetik Holdings Inc. (KNTK) has shown potential for growth following its acquisition of Durango Midstream, with an earnings beat and increased EBITDA guidance, presenting a strong investment opportunity [2][3][5]. Financial Performance - KNTK reported an adjusted EBITDA of $234.3 million for Q2, reflecting a 13% year-over-year increase and flat performance compared to Q1 [4]. - The company’s earnings profile remains consistent with a 60/40 split between gathering/processing and long-haul pipeline transportation [4]. - Full-year adjusted EBITDA guidance has been raised to a midpoint of $960 million, up from $932.5 million, indicating a 3% increase [5]. Growth Initiatives - KNTK has announced new service agreements and increased minimum volume commitments in Eddy and Lea Counties, expected to enhance cash flows and earnings growth in 2025 [6][7]. - The company is addressing natural gas processing capacity issues in the northern Delaware basin through the construction of Kings Landing I, projected to generate $70-$75 million in annual EBITDA starting Q1 2025 [8]. - Plans for a second processing plant, Kings Landing II, are underway, with a target in-service date of Q3 2026 [8]. Capital Expenditure - KNTK has doubled its capital expenditure budget to $260-$300 million, primarily to support the Kings Landing Complex and existing Durango assets [9][10]. - Approximately $100 million of the increased budget is allocated to the Durango acquisition, with additional funds directed towards new projects in New Mexico [10]. Valuation and Market Outlook - The revised earnings profile suggests a valuation of KNTK at 9.3x EV to EBITDA based on 2025 earnings estimates, which is considered attractive for a midstream company [14]. - A potential share price upside of 25% is projected, alongside a 7.3% dividend yield based on the anticipated growth trajectory [14][18].