Marcellus Infrastructure Expansion And Stonewall Joint Venture Will Diversify Revenue Streams

Key Takeaways

• Antero Midstream anticipates EBITDA and earnings growth through increased throughput, capital efficiency, and cost-reducing infrastructure improvements.
  
• Strategic investments and capital allocation, including debt reduction and share repurchases, aim to enhance long-term shareholder value and EPS.
  
• Antero Midstream's reliance on Antero Resources and heavy infrastructure investments pose risks to margins and growth, while legal and strategic uncertainties could impact financial stability.

Catalysts

Owns, operates, and develops midstream energy assets in the Appalachian Basin.

• Antero Midstream expects continued EBITDA growth in 2025 driven by year-over-year throughput growth and efficiency improvements in capital investments, impacting revenue and earnings positively.
  
• The construction of the Torrey's Peak compressor station and the integration of an expanded water system in the Marcellus footprint are expected to support efficient development and lower operational costs, which could enhance net margins.
  
• The investment in the Stonewall joint venture is projected to diversify Antero Midstream’s customer base through additional compression, potentially impacting future revenue streams.
  
• The company plans a significant increase in free cash flow after dividends for 2025, bolstered by lower interest expenses from debt reduction, enabling further investment in value-generating activities such as share repurchases, enhancing earnings per share (EPS).
  
• With a flexible capital allocation strategy including share repurchases, debt reduction, and maintaining a stable dividend, Antero Midstream positions itself to drive long-term shareholder value, potentially impacting shareholder return metrics.

Antero Midstream Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Antero Midstream's revenue will grow by 1.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 34.0% today to 48.0% in 3 years time.
• Analysts expect earnings to reach $597.1 million (and earnings per share of $1.21) by about March 2028, up from $400.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $727.2 million in earnings, and the most bearish expecting $531.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.1x on those 2028 earnings, down from 20.9x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.7x.
• Analysts expect the number of shares outstanding to decline by 0.55% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.0%, as per the Simply Wall St company report.

Antero Midstream Future Earnings Per Share Growth

Risks

• Antero Midstream's capital expenditures for the 2025 budget are significant, with investments ranging from $170 million to $200 million. This could potentially impact net margins if the returns on these investments are not as favorable as expected.
  
• Dependence on Antero Resources for its primary customer base is a risk factor; any slowdown or change in Antero Resources' production activities could affect Antero Midstream's throughput growth and overall revenues.
  
• Legal uncertainties, such as the ongoing appeal process in the Veolia lawsuit, could lead to unexpected financial liabilities or limit cash available for other strategic initiatives, potentially impacting net earnings.
  
• The possibility of leveraging increased cash flow primarily through share repurchases or debt paydown over capital expansion or diversification could limit future growth opportunities, thereby affecting long-term revenue and earnings potential.
  
• Ongoing heavy investment in infrastructure, such as the integrated water system and compressor stations, assumes continuous demand and favorable market conditions; a downturn could lead to underutilized assets, affecting capital efficiency and long-term earnings.

Valuation

• The analysts have a consensus price target of $16.214 for Antero Midstream based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.2 billion, earnings will come to $597.1 million, and it would be trading on a PE ratio of 16.1x, assuming you use a discount rate of 8.0%.
• Given the current share price of $17.45, the analyst price target of $16.21 is 7.6% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.