Analysts have reduced their fair value estimate for Hess Midstream from $41.29 to $40.00, citing moderated growth forecasts and tempered capital return expectations in light of updated views on Bakken activity.
Analyst Commentary
Recent analyst assessments of Hess Midstream reflect a nuanced outlook, with both bullish and bearish perspectives factoring into the company's revised valuation and growth trajectory.
Bullish Takeaways
- Strong contractual arrangements are expected to support stable cash flows. This provides the company with resilience against near-term market volatility.
- The company's capital return profile remains attractive. Anticipated dividend growth of over 5% per year and additional share buybacks are enabled by low capital expenditure requirements.
- Analysts note that the disciplined capital approach positions Hess Midstream to continue delivering shareholder returns even as market conditions evolve.
- Potential corporate activity, such as a buyout, remains a possibility. This could present upside for investors.
Bearish Takeaways
- Downward revisions to EBITDA estimates and price targets reflect tempered growth expectations, particularly in light of Chevron's decision to reduce rig activity in the Bakken.
- Future growth is seen as less certain and may rely more heavily on Chevron’s Bakken development. This introduces increased unpredictability compared to prior years.
- Analysts express concerns that market consensus on growth and capital returns may still be too optimistic. This highlights downside risks if Bakken activity remains subdued.
- While dividend and buyback programs continue, the pace may slow if lower growth and reduced capital spending persist.
What's in the News
- Chevron cut 575 positions in Houston following the completion of its $55 billion merger with Hess, with layoffs taking effect on September 26 (Reuters).
- Hess Midstream LP revised its earnings guidance for the third quarter and full year 2025, now expecting net income at the lower end of prior guidance due to changes in operating outlook.
- The Board of Directors approved a share repurchase plan, including a new agreement to buy back up to $70 million of Class A shares. Repurchased shares are to be cancelled.
- Hess Midstream announced a quarterly cash distribution of $0.7370 per Class A share for Q2 2025. This reflects a significant year-over-year increase supported by recent unit and share repurchases.
Valuation Changes
- Fair Value Estimate has decreased modestly to $40.00 from $41.29, reflecting an updated outlook and lower growth expectations.
- Discount Rate has risen slightly to 7.49%, indicating a marginally higher perceived investment risk compared to the previous 7.46%.
- Revenue Growth Forecast has been reduced to 6.13% from 6.78%, signaling more conservative estimates for future expansion.
- Net Profit Margin is projected to fall to 33.53% from 34.94%, reflecting expectations of compressed profitability.
- Future P/E Ratio is now expected to be 12.63x, up slightly from 12.27x, which implies a modestly higher valuation relative to earnings.
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