Interstate Pipeline Integration And LNG Exports Will Unlock Modernization Opportunities

Key Takeaways

• Integration of new pipelines and organic growth projects could boost DT Midstream's revenue and enhance commercial prospects.
  
• Positive industry trends and strategic asset positioning support DT Midstream's revenue growth and increased shareholder value.
  
• Execution risks with pipeline integration and dependence on Haynesville demand create potential threats to revenue, margins, and growth projections.

Catalysts

Provides integrated natural gas services in the United States.

• DT Midstream's integration of newly acquired interstate pipelines is progressing on schedule, unlocking synergies and modernization opportunities, which could enhance commercial prospects and lead to potential revenue growth.
  
• The company is actively executing a $2.3 billion organic growth project backlog, with projects like the Midwestern Gas Transmission power plant lateral expected to contribute to increased revenue as they ramp up.
  
• Anticipated demand growth in the natural gas sector, driven by LNG exports and data center power generation, positions DT Midstream's Louisiana assets to potentially generate higher revenue through increased utilization and expansion.
  
• Long-term positive impacts from industrial reshoring and increased regulatory support for natural gas infrastructure could result in higher utilization rates and expansion of the company's gathering systems, supporting growth in revenue and earnings.
  
• A commitment to sustaining an investment-grade credit profile and growing the dividend by 5% to 7% per year aligns with anticipated adjusted EBITDA growth, reinforcing confidence in future earnings and shareholder value.

DT Midstream Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming DT Midstream's revenue will grow by 12.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 36.1% today to 40.0% in 3 years time.
• Analysts expect earnings to reach $550.4 million (and earnings per share of $5.45) by about April 2028, up from $354.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 27.1x on those 2028 earnings, down from 28.3x today. This future PE is greater than the current PE for the US Oil and Gas industry at 11.8x.
• Analysts expect the number of shares outstanding to grow by 4.38% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.16%, as per the Simply Wall St company report.

DT Midstream Future Earnings Per Share Growth

Risks

• The integration of newly acquired interstate pipelines presents execution risks that could affect expected synergies and growth opportunities, potentially impacting net margins if not managed effectively.
  
• The reliance on sustained high demand in the Haynesville region is crucial, with any significant decline due to pricing or activity levels potentially affecting gathering volumes and consequently revenue.
  
• The success and timing of new projects, such as data center and utility scale power generation expansions, remain subject to successful commercialization and external demand factors, posing risks to projected revenue growth if delays or cancellations occur.
  
• Market volatility and regulatory uncertainties could impact long-term natural gas sector fundamentals, which may influence DT Midstream's earnings if their demand-based revenue contracts do not provide sufficient stability.
  
• Economic downturns or recessionary pressures could lead to lower energy demand, posing risks to DT Midstream's revenue and EBITDA projections if their assumptions on demand resilience are overly optimistic.

Valuation

• The analysts have a consensus price target of $105.224 for DT Midstream based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $115.0, and the most bearish reporting a price target of just $89.14.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.4 billion, earnings will come to $550.4 million, and it would be trading on a PE ratio of 27.1x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $98.53, the analyst price target of $105.22 is 6.4% higher. 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.