Hess Midstream: A Compelling Opportunity Despite Recent Noise

Despite recent declines, Hess Midstream (HESM) presents a compelling investment opportunity due to its secure 7.4% yield, strong contract protections extending through 2033, and resilient fee-based revenue. A recent lawsuit targets Hess Corp, not HESM, posing no legal or contract risk; the company's strong balance sheet and active buybacks support an expected 7% annual distribution growth and a potential 14% long-term total return. Analysts maintain a strong buy rating with a price target of $45, anticipating further gains if Chevron acquires HESM post-Hess merger.

Analysis

Hess Midstream (NYSE:HESM) has demonstrated solid performance over the past year with a 6% share price gain complemented by a significant dividend yield exceeding 7%. Despite this, the shares trade below their pre-Liberation Day highs, influenced by broader oil price pressures. The recent decline, however, appears overdone, particularly as a noted CLR lawsuit targets Hess Corp (HES), not HESM, thereby posing no direct legal or contractual risk to Hess Midstream's stable, fee-based revenue streams, which are secured by long-term agreements extending through 2033. HESM's financial position is characterized by a robust balance sheet, active share buyback program, and an anticipated 7% annual growth in distributions. These factors contribute to an analyst's expectation of an attractive approximate 14% long-term total return. A strong buy rating is maintained on HESM, with a price target of $45, and further potential upside is noted should Chevron proceed with an acquisition of HESM following the Hess Corp merger.

Key Decisions for Investors

• Investors could consider the current valuation of Hess Midstream as a compelling entry point, given its secure 7.4% dividend yield and strong contractual protections mitigating recent market noise.
• Monitor developments related to the Hess Corp lawsuit and the potential Chevron acquisition of HESM post-Hess merger, as these could serve as significant catalysts for HESM's valuation.
• Evaluate HESM's expected 7% annual distribution growth and active buyback program as key components supporting a potential 14% long-term total return profile.