Hess Midstream earnings on deck as volume growth questions mount By Investing.com

Hess Midstream is expected to report Q1 EPS of $0.67 on revenue of $389.9 million, up 2.6% and 2.1% year over year, but down from Q4 levels of $0.72 and $404.2 million. The tone is cautious as Chevron's Bakken production is projected to stay flat at about 200,000 boe/d through 2028, raising concerns about volume growth, recontracting risk, and distribution sustainability despite a recent quarterly payout increase to $0.7792 per share. Goldman Sachs downgraded the stock to sell from neutral, while the mean price target of $37.50 implies about 4% downside.

Analysis

Hess Midstream is effectively a derivative on Chevron’s capital discipline: with upstream activity flattening, the midstream story shifts from growth to yield-defense. The key second-order effect is that lower drilling intensity can initially look benign for volumes because minimum commitments cushion cash flow, but it increases the probability that contract renewals reprice against a weaker utilization backdrop, which is where the real economic leakage shows up. That means the equity can remain supported for quarters while the terminal value quietly erodes.

The market may be underestimating how concentrated exposure changes the risk profile from "volume variability" to "single-customer bargaining power." If Chevron is prioritizing free cash flow over barrels, Hess Midstream’s leverage to asset utilization becomes less cyclical and more structural, because reduced capex today also suppresses future optionality in gas processing and gathering throughput. In that setup, distribution growth can continue for a while, but each incremental increase is increasingly financed by tighter reinvestment rather than expanding underlying operating momentum.

The most interesting disconnect is that the sell-side is framing this as a near-term volume issue, while the real risk is a multi-year reset in contract economics and midstream multiple compression. A stock trading at a modest forward P/E can still be expensive if the market is not fully discounting a lower long-run growth rate and a higher probability of step-downs at renewal. The upside case is limited unless management can show actual throughput above commitment floors and preserve distribution coverage without another round of capex cuts.

For the broader tape, the article is mildly supportive for Chevron’s capital-return narrative and negative for service and midstream peers with similarly concentrated customer bases. The second-order beneficiary could be larger diversified midstream names with broader basin exposure, since investors may rotate toward less idiosyncratic fee streams if Hess Midstream disappoints.

Key Decisions for Investors

• Short HESM into the print / hold through results if volumes miss guide: best risk/reward is a 1-2 quarter view on multiple compression as investors reprice 2026-2028 renewal risk; downside is limited by distribution support, but a weak print could trigger a 5-10% de-rating quickly.
• Pair trade: long diversified midstream basket vs short HESM for 3-6 months. Use larger operators with multi-basin exposure as the hedge against single-customer concentration risk; this isolates contract-renewal risk rather than crude beta.
• If long CVX, hedge with a small short in HESM or a put spread on HESM: CVX benefits from capex discipline, while HESM bears the operating consequences. This is a cleaner expression of "upstream quality over midstream dependency."
• Wait for management commentary on 2025-2026 volume assumptions before adding to HESM longs. If throughput only tracks minimum commitments, the distribution looks safe but the equity multiple likely stays capped; better entry points would be on a post-earnings selloff that over-discounts near-term stability.
• For event-driven traders, consider a defined-risk HESM put spread into the results with a 1-2 month tenor. The catalyst is binary enough that a modest miss on volumes or recontracting language could produce a fast move, while premium outlay remains contained.