Kinetik Stock Is Down 34% -- But Does a $69 Million Bet Signal a Potential Turnaround Play?

New York City-based Brave Warrior Advisors disclosed a new position in Kinetik Holdings Inc. (NYSE:KNTK), acquiring 1.6 million shares for an estimated $68.8 million in the third quarter, according to a November 14 SEC filing.

What Happened

According to a filing with the Securities and Exchange Commission dated November 14, Brave Warrior Advisors established a new equity position in Kinetik Holdings Inc. (NYSE:KNTK). The firm reported owning 1.6 million shares with a market value of $68.8 million as of September 30. This position was not present in the previous quarter’s disclosure.

What Else to Know

The fund’s new position in Kinetik Holdings represents 1.6% of 13F reportable assets under management.

Top holdings after the filing:

• NYSE: ELV: $592.6 million (13.8% of AUM)
• NYSE: SNX: $536.3 million (12.5% of AUM)
• NYSE: OMF: $440.1 million (10.2% of AUM)
• NASDAQ: SLM: $322.7 million (7.5% of AUM)
• NYSE: AN: $265.6 million (6.2% of AUM)

As of Tuesday, shares of Kinetik Holdings were priced at $37.14, down 34% over the past year and well underperforming the S&P 500, which is up 13% in the same period.

Company Overview

Company Snapshot

• Kinetik Holdings offers gathering, transportation, compression, processing, and treating services for natural gas, natural gas liquids, crude oil, and water in the Texas Delaware Basin.
• The company serves oil and gas exploration and production companies operating in the Delaware Basin, a key region within the Permian Basin.

Kinetik Holdings Inc. is a midstream energy company focused on providing essential infrastructure for the movement and processing of hydrocarbons in the Texas Delaware Basin. Its strategy centers on stable, fee-based cash flows from a diversified base of producer customers. With a high dividend yield, Kinetik Holdings Inc. is based in Midland, TX.

Foolish Take

Kinetik is certainly facing headwinds. In its latest earnings release, management cited volatility across Permian gas markets, negative gas pricing, and lower producer activity among factors pressuring near-term results, but the firm continues to generate stable cash flow, expand processing capacity, and secure long-duration commercial agreements that can compound value over time. And that might be why Brave Warrior loaded up on shares last quarter.

The company posted third-quarter adjusted EBITDA of $242.6 million and distributable cash flow of $158.5 million. Meanwhile, free cash flow reached $50.9 million despite higher capital spending tied to the Kings Landing ramp-up. It also monetized its EPIC Crude stake for more than $500 million, freeing up funds that were used to pay down the company's revolving credit facility.

Kinetik shares are still down sharply from January despite doubling off spring lows, which may help explain the timing of Brave Warrior's buy. For long-term investors, it might make sense to focus on the fact that Kinetik's balance sheet is strengthening, full-year EBITDA guidance remains close to $1 billion, and new commercial wins could support multi-year volume growth, making Kinetik a potentially attractive rebound-and-income play.

Glossary

13F reportable assets: Assets that institutional investment managers must disclose quarterly to the SEC, showing their equity holdings.
Assets under management (AUM): The total market value of investments managed by a fund or investment firm.
Equity position: Ownership of shares in a company, representing a stake in its equity.
Top holdings: The largest investments in a fund's portfolio, typically by market value.
Dividend yield: Annual dividends paid by a company divided by its share price, shown as a percentage.
Midstream energy company: A firm providing transportation, storage, and processing services for oil and gas, between production and end users.
Delaware Basin: A major oil- and gas-producing region within the Permian Basin in West Texas and southeastern New Mexico.
Fee-based cash flows: Revenue generated from fixed or contractual service fees, providing predictable income.
Producer customers: Companies engaged in extracting oil or gas, served by midstream firms for transportation or processing.
Compression: The process of increasing gas pressure to facilitate its movement through pipelines.
Treating services: Processes that remove impurities from oil or gas to meet quality standards for transport or sale.
TTM: The 12-month period ending with the most recent quarterly report.

SLM is an advertising partner of Motley Fool Money. Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.