Over the past year, Hess Midstream (HESM) shares have experienced remarkable growth, with a 33% increase and a 7.38% dividend yield. This growth has been fueled by impressive quarterly results, beating revenue and earnings expectations, with increases in production and throughput volumes. Hess Midstream’s outlook remains optimistic, with stable leverage, significant EBITDA growth, and anticipated buyback potential by 2025. The new Trump administration mantra of “drill baby, drill” suggests an environment of healthy growth for the industry overall.
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Investors should closely monitor Chevron’s ($ CVX) potential acquisition of Hess, as this move could likely provide a premium for shareholders.
Business Model Offers Long-term Stability
Hess Midstream is a fee-based midstream company that owns, operates, and develops a wide range of midstream assets. These assets primarily serve Hess and its third-party customers. The company deals with oil, gas and produced water handling assets, predominantly situated in the Bakken and Three Forks Shale plays in the North Dakota Williston Basin area.
The company operates in three main areas: gathering, processing, and terminating. The gathering segment employs an expansive pipeline network, enabling efficient transportation of natural gas and crude oil. The processing branch runs state-of-the-art facilities such as the Tioga Gas Plant and the LM4 Joint Venture, offering a total capacity of over 600 MMcf/d. Meanwhile, the terminaling sector manages the storage, transportation, and export of crude oil and NGLs.
Hess Midstream’s business model is entirely fee-based, with fixed minimum volume commitments until 2026. This structure helps mitigate the uncertainties of fluctuating commodity prices and underpins a consistent earnings stream, strengthening the midstream companies’ stability. Its revenue stream is bolstered by long-term commercial contracts extending to 2033, with potential for further extensions.
Q4 Top-and-Bottom-line Beats
Hess Midstream reported better-than-anticipated revenues for the fourth quarter of $395.9 million, higher than the $356.5 million in Q4 2023, primarily due to a boost in physical volumes. The company also recognized increased total operating costs and expenses from $146.4 million in Q4 2023 to $152.9 million in Q4 2024 due to pass-through electricity and produced water trucking and disposal costs.
After deduction for noncontrolling interests, the net income was $172.1 million, or $0.68 per share, beating consensus expectations by $0.09. Adjusted EBITDA stood at $298.2 million, and net cash from operating activities was $258.5 million in Q4 2024.
For the full year of 2024, the company reported a net income of $659 million and Adjusted EBITDA of $1.136 billion. As of year-end 2024, cash and cash equivalents were recorded at $4.3 million, and the company’s debt was roughly $3.5 billion, representing a leverage of about 3.1x Adjusted EBITDA.
The company announced a quarterly cash distribution of $0.7012 per Class A share for Q4 2024, marking a 10% rise compared to Q3 2024 and a 55% increase in distribution per share since the first quarter of 2021.
Management has issued forward guidance for 2025 and anticipates net income between $715 million and $765 million. The projected Adjusted EBITDA is expected to fall between $1.235 billion and $1.285 billion. The company also forecasts a Gross Adjusted EBITDA Margin of about 75% for 2025. The firm aims to reduce its leverage to below its 3x Adjusted EBITDA long-term target by the end of 2025.
Analysts Are Constructive
HESM stock has been on an extended uptrend, climbing over 77% in the past three years. It trades at the high end of its 52-week price range of $32.15 – $41.61 and shows no signs of slowing, as it bullishly trades above major moving averages. It seems relatively reasonably valued on a P/FCF basis with a 4.67x ratio compared to the Energy sector average of 5.23x.
Analysts following the company have been constructive on HESM stock. Based on the recent recommendations of two analysts, Hess Midstream is rated a moderate buy overall. The average price target for HESM stock is $44.00, representing a potential upside of 8.62% from current levels.
HESM Stock in Review
Hess Midstream has forged a compelling value proposition with the stock’s impressive 33% year-on-year growth and a healthy dividend yield to boot. A sturdy mix of promising quarterly results, potentially huge buyback plans, and an industry landscape encouraging growth have all led to a strong trajectory. While potential changes like the speculated Chevron acquisition warrant vigilance, the current projections for HESM stock suggest it’s an attractive option for income-oriented investors seeking growth at a reasonable price.
