Has Western Midstream Partners Become a Bargain After a Five Year 521% Rally?

• Wondering if Western Midstream Partners is a hidden gem or fairly priced? You are not alone. Many investors are asking the same question as they look for value in today's energy sector.
• The stock has pulled back recently, slipping 3.1% over the past week and dropping 4.6% year-to-date. However, it has risen 11.6% over the last 12 months and an impressive 521.1% over five years.
• Recent news has focused on the energy sector's ongoing consolidation and evolving priorities. This has led to renewed discussion about Western Midstream Partners' future prospects. Industry M&A activity and infrastructure investments have also brought pipeline and midstream companies like WES into the spotlight, attracting extra interest from both retail and institutional investors.
• Western Midstream Partners currently scores a 5 out of 6 on our valuation checks, indicating possible undervaluation opportunities. Let’s explore what that means using a few common valuation techniques, and see why a more holistic approach could be even more insightful.

Western Midstream Partners delivered 11.6% returns over the last year. See how this stacks up to the rest of the Oil and Gas industry.

Approach 1: Western Midstream Partners Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by forecasting its future cash flows and then discounting those cash flows back to today’s dollars. This method provides a forward-looking assessment based on the cash the business is expected to generate.

For Western Midstream Partners, the current Free Cash Flow sits at approximately $1.41 Billion. Analysts provide direct projections for the next five years. After this, Simply Wall St extrapolates the future numbers. By 2029, Free Cash Flow is expected to reach about $1.9 Billion, with further incremental growth anticipated through 2035.

This model estimates an intrinsic value of $96.53 per share. Based on the DCF, the stock trades at a 61.2% discount to its fair value. This substantial margin signals that Western Midstream Partners is currently undervalued by the market according to this approach.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Western Midstream Partners is undervalued by 61.2%. Track this in your watchlist or portfolio, or discover 840 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Western Midstream Partners.

Approach 2: Western Midstream Partners Price vs Earnings

The Price-to-Earnings (PE) ratio is a classic valuation tool for profitable companies like Western Midstream Partners, as it links the company’s stock price to its actual earnings. For businesses generating steady profits, the PE ratio gives investors a quick benchmark for whether shares are cheap or expensive compared to what the company earns.

It is worth noting that growth expectations and risk levels in a business, such as volatile earnings or uncertain outlooks, play a big role in determining what a “normal” or “fair” PE ratio should be. Higher growth typically warrants a higher PE, while higher risk usually results in a lower fair multiple.

Western Midstream Partners currently trades at a PE ratio of 11.5x. This is just below the Oil and Gas industry average of 12.9x, and well below the average among its listed peers at 21.6x. At first glance, this could suggest the stock trades at a relative discount to its peer group.

However, Simply Wall St’s proprietary “Fair Ratio” model estimates that, considering Western Midstream’s growth prospects, profitability, industry, and risk factors, a fair PE multiple would be about 18.3x. Unlike straight peer or industry comparisons, the Fair Ratio adapts to the unique qualities and context of each business. This makes it a more tailored benchmark for investors.

Since Western Midstream Partners’ actual PE (11.5x) is noticeably lower than its Fair Ratio (18.3x), this analysis points to the stock being undervalued on this metric as well.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1411 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Western Midstream Partners Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let’s introduce you to Narratives. A Narrative is your personal story behind the numbers — the assumptions you make about a company’s future and how those shape your view of its fair value. It allows you to connect Western Midstream Partners’ unique business story to your forecasts for revenue, earnings, and profit margins, creating a clearer picture of where the company could be headed and what it is truly worth.

Narratives are easy to use and available directly in the Community page on Simply Wall St’s platform, trusted by millions of investors. They help you decide when to buy or sell by comparing your Fair Value estimate with the current share price. As news and results are released, Narratives update dynamically so your view always reflects the latest information.

For example, some investors see Western Midstream Partners reaching a price of $46.00, driven by bold growth in pipeline capacity and earnings. Others forecast as low as $36.00, focusing on risks from regulatory changes and capital requirements. By creating your own Narrative, you can easily track how your expectations compare to others and to the consensus price target of $40.67, helping you make more informed investment decisions.

Do you think there's more to the story for Western Midstream Partners? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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