HESM: Bakken Rig Cuts Will Shape Future EBITDA And Capital Returns

Analysts have trimmed their average price target for Hess Midstream to about $37. This reflects reduced long term revenue growth expectations amid anticipated Chevron rig cuts in the Bakken and more modest, though still resilient, EBITDA and capital return trajectories.

Analyst Commentary

Street research points to a more balanced risk and reward profile for Hess Midstream, with the stock viewed as fairly valued after factoring in a softer oil backdrop, Chevron's planned Bakken rig reductions, and moderated growth assumptions.

Bullish Takeaways

• Bullish analysts highlight that contractual protections and fee-based revenues help limit near term downside to cash flows, supporting valuation despite slower growth.
• Lower capital expenditure needs are seen as a key positive, enabling continued dividend growth of more than 5 percent annually alongside ongoing share repurchases.
• Some see the capital return profile as compelling for income focused investors, with a relatively visible path to sustained payouts even under flatter EBITDA scenarios.
• The ongoing strategic review by Chevron in the Bakken is viewed as a potential upside catalyst if activity levels or development plans prove more supportive than currently modeled.

Bearish Takeaways

• Bearish analysts argue that the stock now embeds more muted long term growth, with expected EBITDA reduced by around 10 to 12 percent and projected to be flat by 2026. This is seen as limiting the potential for a valuation re rating.
• Several highlight that consensus estimates may still be too optimistic relative to the updated rig outlook, raising the risk of future estimate cuts and multiple compression.
• Slower Bakken development is expected to weigh on throughput driven upside, which in turn tempers the pace of future capital returns versus prior cycles.
• While a potential buyout remains a theoretical support, some caution that on a standalone basis the risk adjusted return profile now looks less compelling at current valuation levels.

What's in the News

• Issued 2026 guidance calling for net income between $650 million and $700 million, supported by targeted gas and crude gathering, processing, terminal, and water volumes across its Bakken system (Key Developments).
• Provided unaudited guidance for fourth quarter 2025 net income of $170 million to $180 million and full year 2025 net income of $685 million to $695 million, indicating a flatter near term earnings trajectory (Key Developments).
• Updated 2025 gas throughput guidance lower, citing adverse weather, maintenance, and weaker third party volumes, with gas gathering now expected at 455 to 465 MMcf per day and gas processing at 440 to 450 MMcf per day (Key Developments).
• Revised third quarter and full year 2025 earnings outlook toward the lower end of prior ranges, indicating softer profitability versus earlier expectations (Key Developments).
• Completed a $70 million share repurchase tranche, buying back 1,706,118 shares, or about 1.3 percent of shares, indicating its capital return commitment (Key Developments).

Valuation Changes

• Fair Value, unchanged at approximately $36.86 per share, indicating no shift in the model's intrinsic value estimate despite updated assumptions.
• Discount Rate, edged down slightly from about 7.15 percent to roughly 7.12 percent, modestly lowering the implied cost of equity.
• Revenue Growth, reduced meaningfully from around 2.41 percent to about 1.78 percent, reflecting more conservative long term volume and pricing expectations.
• Net Profit Margin, ticked down marginally from roughly 30.24 percent to about 30.13 percent, implying a slightly less favorable long run profitability outlook.
• Future P/E, increased modestly from about 13.67x to roughly 13.97x, suggesting a somewhat higher valuation multiple applied to forward earnings.