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Why Antero Is the Favorite MLP among Analysts

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AM’s analyst recommendations

Antero Midstream Partners (AM), the midstream MLP (master limited partnership) formed by Antero Resources (AR) to provide natural gas midstream services, has a “buy” rating from 100% of the analysts surveyed by Reuters. AM is the only constituent of the Alerian MLP ETF (ETF) that has a “buy” rating from 100% of its analysts.

AM is mainly involved in natural gas gathering and compression and water-related services in the Appalachian Basin. It recently entered into the natural gas processing business through a JV (joint venture) with MPLX LP (MPLX). (For details, check out Market Realist’s series Antero Midstream Announces Joint Venture with MPLX.)

AM’s peers, EQT Midstream Partners (EQM) and Cone Midstream Partners (CNNX) have “buy” ratings from 85.7% and 70% of analysts, respectively, while 66.7% of analysts rate Rice Midstream Partners (RMP) a “hold.”

AM is now trading significantly below the low range of analysts’ target prices. AM’s average target price of $41.2 implies a 32.4% upside potential from its current price levels.

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Valuation analysis

Antero Midstream was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 9.5x as of September 28, 2017—far below its historical average of 14.2x and lower than the peer median of 12.3x. Antero Midstream’s current distribution yield of 4.1% is also higher than the historical average of 3.5%.

AM has industry-leading distribution growth guidance, low leverage, impressive distribution coverage, significant expansion opportunities, low commodity price exposure, and significant presence in the prolific Marcellus Shale.

According to the recent rigs report by Baker Hughes, the rig count in the Marcellus region has risen to 47 as of September 22, compared with 39 at the end of last year.

In the next part, we’ll look at the analysts’ ratings for Viper Energy Partners (VNOM).

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