NEW MEXICO — RBC Capital analyst Elvira Scotto increased her price target on Kinetik stock to $53 from $50 and reiterated a buy rating. Scotto cited expected growth from the KL2 project and sour gas opportunities in New Mexico for this change.

Kinetik's adjusted EBITDA exceeded estimates, driven by improved margins and gains in Gulf Coast marketing. These factors offset Waha price-related shut-ins. Scotto anticipates that Waha price-related shut-ins will continue until additional takeaway capacity becomes available later this year.

Scotto identified the Northern Delaware Basin in New Mexico as a growth opportunity for Kinetik. She stated that Kinetik is positioned to capture sour gas growth prospects in New Mexico when prices support increased activity. Scotto further noted that Kinetik has built its system specifically for handling sour gas. She expects that new competitors could face permitting delays of at least three years to construct acid gas injection wells.

Scotto also said that Kinetik's capital return framework targets a leverage ratio between 3.5x and 4.0x. Kinetik's capital return framework aims for a 3% to 5% increase in annual dividend until dividend coverage reaches 1.6x, and also includes opportunistic share buybacks. Kinetik pays an 81-cent quarterly dividend per share, which annualizes to $3.24 per share. This represents a dividend yield of approximately 7%.

Scotto viewed Kinetik as a potential acquisition target. "We still view KNTK as a logical takeout candidate for buyers seeking to increase equity NGL barrels and sour gas processing," Scotto said.