UBS reiterates Buy rating on Hess Midstream stock with $45 price target

UBS reiterated its Buy rating and $45.00 price target for Hess Midstream (HESM), citing the company's strong financial health, attractive 7.4% dividend yield, and slightly raised Q2 and full-year 2025 EBITDA estimates that surpass Street consensus. This follows HESM's Q1 2025 earnings, which saw an EPS beat and robust 80% adjusted EBITDA margin, alongside a significant $200 million share repurchase plan expected to enhance distributable cash flow and potentially exceed its 5% annual distribution growth target through 2027, with InvestingPro suggesting the stock is currently undervalued.

Analysis

UBS has reiterated its Buy rating and $45.00 price target on Hess Midstream Partners (HESM), citing expectations for strong operational performance. The bank raised its Q2 2025 adjusted EBITDA estimate to $308.0 million, slightly above the Street consensus of $306.7 million, attributing the revision to higher seasonal volumes. This positive outlook is supported by HESM's recent Q1 2025 results, where despite a minor revenue miss, the company posted a robust gross adjusted EBITDA margin of 80%, significantly exceeding its 75% target. The company's commitment to shareholder returns is underscored by a new $200 million share repurchase plan and an attractive 7.4% dividend yield with an eight-year growth streak. These repurchases are specifically structured to increase distributable cash flow per Class A share, potentially enabling the company to surpass its annual distribution growth target of at least 5% through 2027. While a public offering of Class A shares has been announced, HESM will not receive any proceeds, indicating a transaction by existing shareholders. With a P/E ratio of 14.9x and an InvestingPro Fair Value analysis suggesting it is undervalued, the company's fundamentals appear solid, further reinforced by a full-year 2025 EBITDA forecast from UBS that aligns with the midpoint of company guidance.

Key Decisions for Investors

• Income-oriented investors should consider HESM's attractive 7.4% dividend yield, which is supported by a history of consistent growth and a share repurchase program designed to enhance distributable cash flow.
• Given that UBS's forecasts exceed consensus and an internal valuation analysis suggests the stock is undervalued, investors may find an opportunity for capital appreciation in addition to the income stream.
• It is prudent to monitor the company's ability to maintain its high EBITDA margins and the deployment of increased Q2 capital expenditures ($75.0 million) for their impact on future growth and cash flow generation.