Hess Midstream LP (NYSE: HESM), a prominent player in the U.S. oil and gas midstream industry, offers a compelling opportunity for investors seeking robust dividend yields and potential upside. With a market capitalization of $8.6 billion, Hess Midstream operates a diversified portfolio of midstream assets, providing essential services to both Hess Corporation and third-party customers. The company’s focus on gathering, processing, storage, and terminaling positions it strategically within the energy sector.
Currently trading at $37.69, Hess Midstream’s stock reflects a modest price change of 0.26 (0.01%), with a 52-week range spanning from $33.48 to $43.88. The stock’s current price offers an intriguing entry point, especially when considering its 18.33% potential upside based on the average analyst target price of $44.60. Analyst sentiment remains optimistic, with three buy ratings and two hold ratings, and no sell recommendations, underscoring confidence in the company’s continued performance.
One of the standout features of Hess Midstream is its attractive dividend yield of 7.18%, a significant draw for income-focused investors. However, the high payout ratio of 105.95% signals that the company is distributing more in dividends than its earnings, a factor worth monitoring closely. This could imply potential challenges in sustaining such a high dividend yield if earnings do not keep pace.
In terms of valuation, Hess Midstream’s forward P/E ratio of 10.22 suggests the stock is attractively priced relative to its earnings growth prospects. The company’s revenue growth of 11.10% further reinforces its robust operational performance, although the lack of available data on net income and other valuation metrics like P/E and PEG ratios necessitates a cautious approach.
Hess Midstream’s financial health is bolstered by a substantial free cash flow of $341.8 million, providing flexibility to reinvest in growth opportunities or manage debt. Additionally, the company boasts an impressive return on equity of 159.08%, highlighting its efficiency in generating profits from shareholders’ equity.
Technical indicators present a mixed picture. The stock’s 50-day moving average of $40.14 exceeds the current price, suggesting potential resistance, while the 200-day moving average of $37.76 is closely aligned with the current price, indicating a potential support level. The Relative Strength Index (RSI) of 47.83 suggests the stock is neither overbought nor oversold, providing a neutral stance from a momentum perspective.
Hess Midstream’s extensive network includes approximately 1,415 miles of natural gas pipelines, 590 miles of crude oil pipelines, and 330 miles of produced water pipelines, underscoring its expansive reach. The company’s strategic assets, such as the Tioga Gas Plant and Mentor Storage Terminal, enhance its competitive edge in processing and storage capabilities.
Founded in 2014 and based in Houston, Texas, Hess Midstream continues to evolve, having rebranded from Hess Midstream Partners LP in December 2019. As the energy sector navigates regulatory, environmental, and market fluctuations, Hess Midstream’s stable cash flows and strategic asset base position it well to capitalize on industry opportunities.
For investors, Hess Midstream LP presents a blend of income potential and growth prospects, albeit with considerations around its dividend sustainability. As the company continues to develop its midstream assets, stakeholders should remain vigilant regarding market conditions and operational performance, ensuring a balanced approach to investment in this dynamic sector.
