Hess Midstream Shares Trade at Steep Discount: Is the Market Overlooking a Pipeline Giant?
Hess Midstream LP (NYSE: HESM), a critical player in the Bakken shale's energy infrastructure, finds its shares under pressure, closing recently at $34.97. While the one-year return shows an 8.8% decline, longer-term horizons tell a different story with robust three and five-year gains. This divergence has investors questioning whether the current price reflects the company's intrinsic value or presents a buying opportunity.
Analysts point to Hess Midstream's stable, fee-based revenue model as a buffer against commodity price swings. The company, which handles gathering, processing, and storage for Hess Corporation, benefits from long-term contracts and volume commitments. However, broader sector headwinds and investor rotation away from traditional energy have weighed on sentiment.
Valuation Gap Highlights Potential
A Discounted Cash Flow (DCF) analysis, projecting future cash generation and discounting it to present value, paints a compelling picture. Based on a two-stage model, Hess Midstream's estimated intrinsic value lands near $71.72 per share. This suggests the stock is trading at a striking 51% discount to its calculated fair value, a gap that typically catches the eye of value-oriented investors.
Peer Comparison Offers Mixed Signals
On a price-to-earnings (P/E) basis, Hess Midstream's multiple of 13.71x aligns closely with the broader Oil & Gas industry average of 13.66x. Yet, it sits well below the average of its closer peer group, which stands at 44.97x. This discrepancy underscores the importance of context: while the P/E seems reasonable against the sector, it may appear depressed compared to similar midstream entities, potentially indicating overlooked value or perceived specific risks.
The Narrative Beyond the Numbers
Ultimately, valuation is not just about models. It's about the story investors believe about a company's future. For Hess Midstream, the narrative hinges on the longevity of Bakken production, the stability of its contracted cash flows, and its potential for disciplined growth. Platforms that aggregate investor sentiment show a wide range of fair value estimates, from conservative to bullish, reflecting the market's ongoing debate.
Investor Voices: A Range of Perspectives
"The DCF model speaks for itself—a 50%+ discount is hard to ignore. This isn't a speculative tech stock; it's a cash-generating utility-like asset in the energy space. The market is myopically focused on short-term ESG flows, missing the fundamental value here," says Michael Rourke, a portfolio manager at Great Plains Capital.
"I've been adding to my position on this weakness. The yield is attractive, and the parent company's commitment to the Bakken provides visibility. It's a classic case of price diverging from value during a sector-wide sentiment slump," notes Sarah Chen, an independent energy analyst.
"This is a value trap, plain and simple. The DCF is a fantasy built on optimistic long-term projections for fossil fuel infrastructure. Regulatory risks and the energy transition are real, and the discounted multiple reflects that permanent impairment, not a temporary oversight," argues David Feldspar, a sharp-tongued commentator at The Green Ledger blog.
"The peer comparison is the key for me. Trading at a third of its peer group's P/E, even after accounting for growth differences, suggests something is off. Either HESM is wildly cheap, or its peers are in a bubble. I'm leaning towards the former," observes Linda Gibson, a veteran retail investor.
This analysis is based on publicly available data and financial modeling techniques. It is for informational purposes only and does not constitute a recommendation to buy or sell any security. Investors should conduct their own research and consider their individual financial circumstances.