Antero Midstream Has a 37% Upside Potential from Current Levels

Recent market performance

Antero Midstream Partners (AM) is a midstream MLP primarily involved in natural gas gathering, natural gas compression, and water-related midstream services in the Appalachian Basin. The partnership recently entered the natural gas processing business through a JV (or joint venture) with MPLX LP (MPLX).

Antero Midstream Partners saw a new 52-week low during the recent plunge in the midstream sector. However, it has recovered significantly since then. Overall, Antero Midstream Partners has lost 8.4% since the beginning of this year.

Among AM’s peers, Cone Midstream Partners (CNNX), EQT Midstream Partners (EQM), and Rice Midstream Partners (RMP) have lost 30.0%, 12.0%, and 14.9%, respectively.

Antero Midstream Has a 37% Upside Potential from Current Levels

Valuation analysis

Antero Midstream (AM) was trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 8.7x on December 6, 2017. This is significantly below the historical average of 13.9x. Antero Midstream’s current distribution yield of 4.8% is also higher than the historical average of 3.6%.

The partnership’s current valuation could indicate a buying opportunity considering its low commodity price exposure, significant presence in the prolific Marcellus Shale, industry-leading distribution growth, healthy distribution coverage, and low leverage.

Analysts’ recommendations

Antero Midstream (AM) ranks eighth in terms of upside potential among MLPs. It is currently trading significantly below the low range ($34.00) of analysts’ target prices. AM’s average target price of $38.70 implies an ~37% upside potential from its current price levels.

The partnership has “buy” ratings from 100.0% of analysts surveyed by Reuters. Antero Midstream is the only Alerian MLP ETF (AMLP) constituent to receive “buy” ratings from 100% of analysts. Of the total 16 analysts covering the stock, eight analysts rate it as “buy” and the remaining eight rate it as a “strong buy.”

In the next article, we’ll look into the upside potential for Genesis Energy (GEL).