HESM: Slower Bakken Activity And Dividends Will Define Future Returns

Analysts have reduced their average price target for Hess Midstream from $37 to approximately $36.86. This change reflects expectations of slower EBITDA growth and balanced risk in light of Chevron's anticipated reduction in Bakken activity and a revised capital return outlook.

Analyst Commentary

Recent coverage of Hess Midstream reflects both supportive and cautious views from analysts, with perspectives shaped by shifting operational dynamics and Chevron's anticipated strategy in the Bakken region.

• Analysts note that Hess Midstream's strong contractual framework helps shield the company from immediate downside. This adds a degree of stability to earnings amid sector headwinds.
• The company is expected to sustain dividend growth of more than 5% annually, supported by comparatively low capital expenditure requirements.
• Efficient capital allocation is creating flexibility for continued share repurchases, though at a more measured pace.
• The capital return profile remains compelling, as lower investment needs could enhance total shareholder returns over time.

• Bearish analysts caution that EBITDA growth expectations have been reset lower, with some now projecting flat EBITDA for 2026 given the anticipated reduction in drilling activity.
• Valuation is seen as full, providing little near-term upside because consensus estimates for growth and earnings may remain too optimistic.
• Uncertainty around Chevron's ongoing review of Bakken development introduces both upside and downside risk to Hess Midstream's future performance.
• The standalone investment case for Hess Midstream is now seen as less compelling, especially in light of reduced capital return prospects and less clarity on long-term growth.

What's in the News

• Hess Midstream completed a buyback of 1,764,839 shares, totaling $70 million, as part of the program announced on August 5, 2025 (Key Developments).
• The company provided unaudited earnings guidance for Q4 and full year 2025, projecting quarterly net income between $170 million and $180 million, and full-year net income between $685 million and $695 million (Key Developments).
• The Board of Directors increased the quarterly cash distribution to $0.7548 per Class A share for Q3 2025, up $0.0178 from the previous quarter and significantly above the company’s targeted annual growth through 2027 (Key Developments).
• Full year 2025 gas throughput guidance has been updated. Average gas gathering volumes are now expected at 455 to 465 MMcf per day, and gas processing volumes at 440 to 450 MMcf per day, reflecting recent operational impacts (Key Developments).
• Earnings guidance for Q3 and full year 2025 have been revised lower, with third quarter net income expected at the bottom of the previous guidance and full-year net income anticipated within the lower half of guidance (Key Developments).

Valuation Changes

• Consensus Analyst Price Target has decreased slightly from $37.00 to approximately $36.86 per share.
• Discount rate has fallen marginally, moving from 7.16% to 7.15%.
• Revenue growth expectations have risen, with projections increasing from 2.20% to 2.41%.
• Net profit margin has fallen significantly, declining from 35.95% to 30.24%.
• Future P/E has increased, rising from 11.62x to 13.67x.