Pipeline Contract Ramp And Rising Volumes Will Drive Long Term Cash Flow Resilience

Catalysts

About Summit Midstream

Summit Midstream is a diversified midstream energy company that gathers, processes and transports natural gas and liquids for producers across multiple basins.

What are the underlying business or industry changes driving this perspective?

• The ramp up of Double E Pipeline take or pay contracts toward 1.215 Bcf per day by 2027, combined with ongoing commercialization of remaining free flow capacity, is expected to lift fee based pipeline revenue and increase EBITDA visibility over the next several years.
• Robust upstream activity and large drilled but uncompleted inventories across Rockies, Mid-Con and Permian systems, including more than 120 planned well connects in the first half of 2026, support sustained volume growth that may drive higher gathering revenue and operating leverage.
• Completion of integration and optimization projects by the end of 2025 and redeployment of 12 latent compressors are expected to reduce third party lease costs by over $4 million annually, which would directly support margin expansion and higher net earnings from 2026 onward.
• Exposure to US natural gas and liquids demand for power generation and industrial and export markets, together with seasonally strong Rockies pricing, positions Summit’s largely fixed fee systems to potentially benefit from higher throughput and improved product margin, supporting revenue and cash flow resilience.
• Maintained liquidity with approximately $349 million of borrowing capacity and a focus on free cash flow generation create optionality to reduce leverage, refinance on different terms or selectively invest in projects that are expected to have higher returns, which can affect net income and equity value over time.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Summit Midstream's revenue will grow by 9.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -8.3% today to 8.3% in 3 years time.
• Analysts expect earnings to reach $55.5 million (and earnings per share of $4.44) by about December 2028, up from $-42.9 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 14.6x on those 2028 earnings, up from -7.6x today. This future PE is greater than the current PE for the US Oil and Gas industry at 13.0x.
• Analysts expect the number of shares outstanding to grow by 1.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.7%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The current growth outlook is heavily dependent on customer drilling and completion activity, so any sustained slowdown in US shale investment or a shift of capital away from the Rockies, Mid-Con and Permian basins could reduce new well connects and pressure long-term gathering and pipeline revenue.
• Natural production declines are already visible in certain liquids volumes. If future well performance or decline rates are less favorable than expected, Summit may struggle to offset declines with new connections, which could undermine operating leverage and limit improvements in net margins.
• The strategy to ramp Double E Pipeline throughput and commercialize remaining free flow capacity assumes robust long-term demand for Permian gas takeaway. If new competing pipelines or changes in export and power generation demand slow contract signings, contracted volumes and associated EBITDA could fall short of expectations and reduce earnings growth.
• Summit carries approximately 950 million dollars of net debt. If interest rates remain structurally higher or capital markets become less supportive of midstream refinancing, higher funding costs could erode free cash flow and constrain the company’s ability to reinvest in high return projects, weighing on future earnings.
• The current benefits from stronger NGL and condensate pricing and seasonally favorable Rockies gas prices may not persist over the long term. If commodity prices weaken or basis differentials move unfavorably, product margin could compress and delay the anticipated expansion in EBITDA margin and net income.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $47.0 for Summit Midstream based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $667.8 million, earnings will come to $55.5 million, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 10.7%.
  
• Given the current share price of $26.55, the analyst price target of $47.0 is 43.5% higher.
  
• 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.