EQT Midstream’s Strong Operating Performance Continues in 3Q17
Earnings in 3Q17
EQT Midstream Partners (EQM), the MLP formed by EQT Corporation (EQT) to provide natural gas gathering, compression, and transportation services in the Appalachian Basin, posted strong 17.2% and 25.3% YoY (year-over-year) revenue and EBITDA (earnings before interest, tax, depreciation, and amortization) growth in 3Q17. However, the partnership still missed its 3Q17 EBITDA estimate by 1.4%.
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The partnership’s strong 3Q17 performance was driven by higher firm contracted gathering and transmission capacity. Under firm contracts, a fixed monthly fee is charged for the reservation of pipeline capacity, regardless of pipeline usage.
Distribution in 3Q17
EQT Midstream Partners declared a distribution of $0.98 per unit in 3Q17, which represents a 20.0% rise from 3Q16 and a 5.0% rise from 2Q17. At the same time, EQT GP Holdings declared a quarterly distribution of $0.23 per unit in 3Q17, which represents a massive 38% rise from 3Q16. Based on their recent distributions, EQM and EQGP are trading at attractive distribution yields of 5.5% and 3.4%, respectively.
EQT Midstream continued to maintain impressive distribution coverage during the third quarter, despite strong distribution growth. EQM’s distribution coverage stood at 1.3x at the end of 3Q17.
Seaport Global initiated coverage on EQT Midstream Partners last month and assigned a “buy” rating. Overall, the partnership has seen three rating updates in 2017—one upgrade and two initiations of coverage. Of the analysts covering EQM, 92.9% recommend “buy” and the remaining 7.1% recommend “hold.” EQM is currently trading below the low range ($84) of analysts’ target price. EQM’s average target price of $92.50 implies s 30% potential upside based on its current price.