Where EQM Stands in the Earnings Margin Lineup among Top MLPs


Dec. 7 2017, Updated 1:57 p.m. ET


EQT Midstream Partners (EQM), the midstream MLP (master limited partnership) owned by Appalachia-based EQT Corporation (EQT), has the fourth-best EBITDA (earnings before interest, tax, depreciation, and amortization) margin among MLPs today.

EQM, which is mainly involved in natural gas gathering, compression, and transportation, posted a TTM (trailing-12-month) EBITDA margin of 80.5% for 3Q17. EQM’s high EBITDA margins have been driven by its involvement in the high-margin gathering and transportation business.

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Midstream companies Williams Partners (WPZ), Energy Transfer Partners (ETP), and Antero Midstream Partners (AM) are involved in the natural gas gathering and transportation business. But their margins are impacted by their involvement in other low-margins midstream activities, such as natural gas processing, NGL (natural gas liquids) fractionation, commodities acquisition and marketing, and water-related midstream services.

EQT Midstream Partners’ strong EBITDA margin and low leverage have resulted in a high net income margin and high distributable cash flows. The partnership reported a net income margin of 69.0% in 3Q17, including 20% YoY distribution growth.

Trend in recent quarters

EQM’s EBITDA margin rose to 82.3% in 3Q17, compared with 76.9% in the 3Q16. This represents a YoY (year-over-year) margin expansion of 533 basis points.

The partnership’s EBITDA margin is not expected to change much in coming quarters, but its revenue growth, resulting from expansion projects, will likely drive EQM’s EBITDA growth.

Analyst recommendations

Notably, 92.8% of the analysts surveyed by Reuters recommend a “buy” for EQM, while 7.2% recommend a “hold.” Seaport Global last initiated coverage on EQM with “buy” rating.

EQM is trading significantly below the low range ($81) of the analysts’ target price. EQM’s average target price of $89.7 implies a ~31% upside potential from its current price level.

In the next part, we’ll discuss the EBITDA margin for KNOT Offshore Partners (KNOP).


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