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EQT Midstream at 4-Year Lows: How Much Upside Does It Offer?

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Apr. 6 2018, Updated 1:20 p.m. ET

Recent market performance

EQT Midstream Partners (EQM), a midstream MLP mainly involved in natural gas gathering, compression, and transportation, is currently trading close to its four-year lows. It has fallen 19.9% since the start of 2018.

The partnership hasn’t entered positive territory since the beginning of February 2018. It saw a steep fall following the announcement of the EQT Midstream spin-off, indicating near-term dilution from the deal. For a detailed analysis on the spin-off, read What EQT’s Midstream Spin-Off Could Mean for Investors.

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Valuation analysis

EQT Midstream Partners was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 6.6x on March 30, 2018. This was below the partnership’s historical one-year and five-year averages of 8.7x and 12.6x, respectively. EQT Midstream Partners’ current distribution yield of 6.9% is also higher than its historical five-year average of 3.6%.

The partnership’s current valuation looks attractive and indicates a buying opportunity considering its strong distribution growth guidance, low commodity price exposure, low leverage, impressive distribution coverage, and long-term accretion from the spin-off transaction.

Analysts’ recommendations

EQT Midstream Partners is in the eighth spot in terms of upside potential among the top midstream companies under review in this series. It’s currently trading below the low range ($66) of analysts’ target prices. EQM’s average target price of $82.4 implies a ~39% upside potential from its current price level.

Bank of America recently downgraded the partnership from a “buy” to a “neutral,” which is equivalent to a “hold.” Now, 62.5% of analysts have rated EQM as a “buy,” while the remaining 37.5% have rated it as a “hold.”

In the next article, we’ll look into the upside potential of Western Gas Equity Partners (WGP).

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