New Capacity Expansions And Robust Throughput Will Energize US Midstream

Key Takeaways

• Expanding pipeline capacity and new infrastructure investments are expected to drive future growth, revenue, and cash flow gains.
  
• Strong demand, diversified customer contracts, and cost efficiencies position the company for stable, predictable earnings and margin expansion.
  
• Heavy reliance on capital-intensive projects and steady producer activity exposes the company to amplified financial, regulatory, and volume-driven risks that threaten profitability and distribution growth.

Catalysts

Operates as a midstream energy company primarily in the United States.

• Sustained growth in global energy demand, coupled with the US's ongoing emergence as a leading LNG exporter, is expected to support higher utilization of WES's pipeline and processing assets, driving long-term revenue and EBITDA growth as throughput volumes expand.
  
• The company's record Q2 adjusted EBITDA and strong throughput in the Delaware Basin signal robust underlying demand in key low-cost US basins, which positions WES to benefit from stable, predictable earnings due to its fee-based contract structure and diversified producer base.
  
• Investment in major long-term capacity expansions-such as the Pathfinder pipeline and North Loving II plant-are set to come online in 2027, adding significant processing and transport capability, and expected to materially increase revenues and cash flows in subsequent years.
  
• Continued focus on cost optimization and operational efficiencies are helping contain OpEx even as volumes grow, providing the potential for margin expansion and higher net earnings as new projects ramp up.
  
• Organic contract wins and growth in gathering and processing agreements with a variety of producers enhance revenue stability and reduce customer concentration risk, supporting more consistent distributable earnings and potentially higher shareholder returns.

Western Midstream Partners Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Western Midstream Partners's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 33.9% today to 38.6% in 3 years time.
• Analysts expect earnings to reach $1.7 billion (and earnings per share of $4.16) by about August 2028, up from $1.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 11.1x on those 2028 earnings, down from 11.9x today. This future PE is lower than the current PE for the US Oil and Gas industry at 13.0x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.49%, as per the Simply Wall St company report.

Western Midstream Partners Future Earnings Per Share Growth

Risks

• Large capital expenditure commitments for projects like Pathfinder and North Loving II significantly increase future financial risk, and if producer activity slows or customer expansion stalls due to declining hydrocarbon demand or policy changes, these investments could drive down return on invested capital and erode net margins.
  
• The company's growth outlook is heavily dependent on continued strong throughput and organic contract wins in its core basins; any weakness in U.S. oil and gas production due to an accelerating energy transition or increased regulatory pressure could severely restrict revenue growth.
  
• Western Midstream's capital budget is highly sensitive to the drilling and production decisions of its producers; reductions in producer budgets triggered by price volatility, policy changes, or ESG pressures could quickly reduce volumes and depress earnings.
  
• High capital requirements to support growth also increase the potential for further equity or debt issuance, raising dilution risk for unitholders or inflating interest expenses, both of which would dampen per-unit earnings and future distributions.
  
• With substantial new infrastructure projects slated for 2027 and beyond, any delays, regulatory setbacks, or cost overruns could materially impact project returns and cash flow timing, negatively affecting overall profitability and revenue realization.

Valuation

• The analysts have a consensus price target of $40.083 for Western Midstream Partners 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 $45.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.5 billion, earnings will come to $1.7 billion, and it would be trading on a PE ratio of 11.1x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of $38.69, the analyst price target of $40.08 is 3.5% 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.