Morgan Stanley upgrades DT Midstream stock rating on growth outlook By Investing.com

Morgan Stanley upgraded DT Midstream to Equalweight from Underweight and lifted its price target to $165 from $139, implying 25.5% upside including a 2.6% dividend yield. The company also reported mixed Q4 2025 results, missing EPS at $1.08 versus $1.17 expected but beating revenue at $322 million versus $317.54 million forecast. Management’s 2026 EBITDA midpoint guidance of $1.19 billion and continued dividend growth support a constructive long-term view despite valuation concerns from some brokers.

Analysis

The key signal is not the small rating change itself, but that the market is starting to re-rate regulated-like midstream cash flows as an AI/data-center power play. If DTM’s backlog is truly converting into higher-quality growth, the multiple should keep compressing its discount to utilities and premium midstream peers, because data-center interconnects tend to be long-duration, take-or-pay style demand with lower volume volatility. That makes the name less about commodity sensitivity and more about scarce high-density gas infrastructure in constrained corridors.

The second-order winner is the broader natural-gas infrastructure stack: pipe, compression, and storage assets connected to load growth in the Midwest and Gulf Coast should see a longer runway as LNG exports and power demand compound. The underappreciated loser is merchant power/utility generation that lacks firm gas access; if the market continues to price in gas-fired incremental load, regional basis differentials can widen and favor midstream assets with embedded optionality. The earnings miss matters less than the guidance path if EBITDA acceleration is front-loaded into 2026-2028, because that is the period when the market is most likely to pay up for visible growth.

The contrarian issue is valuation durability: when a defensive cash-flow name gets marketed as a growth compounder, the stock often becomes vulnerable to any backlog slip, permitting delay, or customer concentration scare. That risk is most acute over the next 1-3 quarters, not the next 3-5 years, because the move is now dependent on execution proof rather than narrative. If gas prices soften or AI capex slows, the re-rating can unwind quickly even if the long-term thesis remains intact.

Key Decisions for Investors

• Go long DTM on a 3-6 month horizon on pullbacks into the low-130s; target a move toward the revised fair value area, with downside mainly if backlog conversion disappoints or valuation multiples de-rate back to utility-like levels.
• Pair trade: long DTM / short a lower-quality gas infrastructure or yield proxy with weaker growth visibility; the relative value works if the market keeps rewarding visible backlog and data-center/LNG exposure over headline yield.
• Buy a limited-risk call spread in DTM for the next 6-9 months; this captures continued multiple expansion while defining risk if the market has already priced in the upgrade and the stock stalls above the current range.
• Use any strength in DTM to trim if the stock trades well above the new target before evidence of 2026 EBITDA conversion; the setup is strongest while expectations are still being revised, not after consensus fully catches up.
• Watch for a confirmation trade in adjacent midstream names with Midwest or Gulf Coast gas exposure; a sustained rerating in DTM is likely to spill over to peers with similar data-center/LNG optionality.