HESM: Buybacks And Distributions Will Support Execution As Street Turns More Cautious

Analysts have trimmed their average price target for Hess Midstream to about $36.83 from $37.50, citing recent revisions to discount rates, forward P/E assumptions, and updated views reflected in both price target changes and a downgrade in Street research.

Analyst Commentary

Recent Street research around Hess Midstream highlights a mix of supportive and cautious views, with price targets being adjusted in both directions over the past few months before the latest trim to about US$36.83.

Bullish Takeaways

Bullish analysts who previously raised their price targets by about US$4 saw room for improved execution, with expectations that the company could deliver on operational plans already laid out to the market.
The earlier target increase suggested some confidence that the stock's valuation could better reflect the company's contracted cash flows and fee-based model, assuming those cash flows track existing forecasts.
Supportive research commentary pointed to a view that, if Hess Midstream stays on schedule with project delivery and cost discipline, its current trading levels might not fully capture that execution.
Some of the positive stance also reflected the idea that the partnership structure and long term agreements already in place can provide visibility on volumes and revenue, which bullish analysts see as helpful for underwriting their models.

Bearish Takeaways

Bearish analysts, including those behind the latest downgrade, have focused on valuation, arguing that prior price targets did not fully account for updated discount rates and P/E assumptions now being used across the sector.
The recent cut in the average price target signals a view that the risk and return profile, as captured in current models, may be more balanced at lower price levels than earlier bullish research implied.
Recent commentary has also highlighted execution risk, with cautious analysts emphasizing that any slip against existing volume or cost expectations could limit upside relative to past target prices.
Some Street research frames the stock as fairly sensitive to changes in broader funding costs and midstream sector sentiment, which, in their view, justifies more conservative valuation inputs in current models.

What's in the News

The company issued new earnings guidance for the second quarter of 2026, with expected net income of approximately US$150 million to US$160 million, and reaffirmed full year 2026 net income guidance of US$650 million to US$700 million, alongside operating volume guidance across gas, crude oil, NGLs and water systems (Corporate guidance).
The company reported unaudited operating results for the first quarter of 2026, including gas gathering of 438 Mcf per day, crude oil gathering of 110 bopd, gas processing of 430 Mcf per day, crude terminals throughput of 119 bopd, NGL loading of 15 blpd and water gathering of 115 blpd (Operating results announcement).
The company announced a higher quarterly cash distribution of US$0.7792 per Class A share for the quarter ended March 31, 2026, compared with the fourth quarter of 2025, supported by Class A and Class B unit repurchases completed in March 2026. The distribution is payable on May 14, 2026 to shareholders of record on May 7, 2026 (Dividend announcement).
The board authorized a share buyback plan on March 3, 2026, providing the framework for capital returns through repurchases (Buyback announcement).
The company entered into an agreement with JPMorgan Chase Bank to repurchase up to US$42 million of Class A shares, funded from the existing revolving credit facility, with repurchased shares to be cancelled and final settlement expected in March 2026 (Buyback announcement).

Valuation Changes

Fair Value: trimmed from $37.50 to about $36.83 per unit, a reduction of roughly 1.8% in the central valuation anchor.
Discount Rate: raised slightly from 6.98% to about 7.12%, which implies a modestly higher required return in updated models.
Revenue Growth: adjusted from about 2.12% to roughly 2.28%, reflecting a small change in forward revenue assumptions in the models that use this input.
Net Profit Margin: moved from about 29.27% to roughly 31.47%, indicating a higher margin input in the latest set of assumptions.
Future P/E: reset from about 14.35x to around 13.04x, which points to a lower valuation multiple being applied to expected earnings.

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Key Takeaways

The company benefits from stable, fee-based revenues and strong growth potential due to essential infrastructure and long-term contracts in key U.S. energy markets.
Conservative financial management and ongoing investments support rising dividends, robust cash flow, and increased shareholder returns even under inflationary pressures.
Heavy reliance on Bakken production and Chevron activity, limited diversification, and rising ESG pressures heighten operational, financial, and strategic risks for long-term stability.

Catalysts

About Hess Midstream

Owns, operates, develops, and acquires midstream assets and provide fee-based services to Hess and third-party customers in the United States.What are the underlying business or industry changes driving this perspective?

Anticipated sustained strong throughput growth driven by robust upstream production and ongoing U.S. energy export demand, positioning the company to benefit from elevated utilization rates and higher revenues across gas processing, oil terminaling, and water gathering through at least 2027.
Multi-year minimum volume contracts with Hess Corp (now under Chevron), providing highly predictable, inflation-resistant fee-based revenue streams through the late 2030s, which supports stable adjusted EBITDA and consistent dividend/distribution growth.
Large, strategic, and largely irreplaceable infrastructure footprint in the core Bakken shale combined with ongoing investments (like compressor stations and the Capa gas plant) enables Hess Midstream to capture incremental volume growth as domestic and export energy needs remain high, further supporting margin and EBITDA expansion.
Conservative leverage and investment-grade balance sheet (recent BBB
upgrade) create additional financial flexibility for continued buybacks and rising distributions, directly supporting EPS and total shareholder return, with $1.25B in planned repurchases/distributions through 2027.
Long-term focus on disciplined, low-risk growth investments and high-operating leverage (80% EBITDA margin) ensures the company can convert volume and pricing tailwinds into higher free cash flow and net income, further enhancing returns even amid inflation and cost pressures.

Hess Midstream Earnings and Revenue Growth

Hess Midstream Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Hess Midstream's revenue will grow by 2.3% annually over the next 3 years.
Analysts assume that profit margins will increase from 22.6% today to 31.5% in 3 years time.
Analysts expect earnings to reach $548.7 million (and earnings per share of $2.94) by about May 2029, up from $368.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $689.1 million in earnings, and the most bearish expecting $427.6 million.
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 13.1x on those 2029 earnings, down from 13.6x today. This future PE is lower than the current PE for the US Oil and Gas industry at 14.4x.
Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 7.12%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

The company's revenues and cash flow are heavily reliant on sustained production growth from Hess Corporation (now under Chevron), and any reduction in drilling activity, changes to Chevron's capital allocation, or shifts in Bakken development strategy could materially reduce throughput volumes, impacting both revenue and EBITDA.
Limited geographic diversification exposes Hess Midstream to regional risks (such as local environmental regulations, basin-specific production declines, or adverse market dynamics in the Bakken), which could put downward pressure on margins and overall earnings stability during periods of basin or operational challenges.
As the Bakken matures, flat or declining long-term oil production and slower-than-expected gas growth could lead to excess midstream capacity and underutilization of pipeline and gathering assets, reducing throughput, revenue, and ultimately compressing net margins.
The exit of a major independent shareholder (GIP) removes a layer of governance independence; despite new board mechanisms, increased sponsor influence could lead to capital allocation decisions or strategic shifts that are less favorable for public shareholders, potentially affecting valuation and the consistency of shareholder-focused returns.
The ongoing global energy transition and stricter environmental policies raise long-term structural risks; expanding ESG-driven investor scrutiny and regulation could increase Hess Midstream's cost of capital and operating expenses, while gradual displacement by renewables may limit growth opportunities and put future revenue and earnings at risk.

Valuation

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

The analysts have a consensus price target of $36.83 for Hess Midstream 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 $40.0, and the most bearish reporting a price target of just $32.0.
In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $1.7 billion, earnings will come to $548.7 million, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 7.1%.
Given the current share price of $38.82, the analyst price target of $36.83 is 5.4% lower. 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.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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