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Is EQM Midstream Partners’ 10.4% Yield Risky?

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EQM’s yield

EQM Midstream Partners (EQM), the MLP of Equitrans Midstream (ETRN), is trading at a yield of 10.4%, which is slightly more than double its five-year average yield of ~5.1%. EQM Midstream stock has fallen to roughly half of its levels of ~$82 in February 2017. The stock’s significant fall has pushed its yield higher. Parent Equitrans Midstream, formed in November 2018 to hold EQT’s (EQT) midstream business, has risen ~10% since it began trading. In comparison, EQM has fallen ~2% over the same timeframe. Six months down the line, the spin-off seems to have failed to get investors excited about the stock.

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Analysts’ recommendations

Analysts also seem to be cautious about the stock’s future performance. As the above graph shows, as many as 73% of the analysts surveyed by Reuters rated EQM Midstream as a “buy” in May 2018. The percentage of analysts giving the stock a “buy” rating has fallen to 36% currently. The remaining 64% of analysts rate it as a “hold.” Around 60% of analysts rated EQM as a “buy” in November 2018, when Equitrans’s spin-off was completed.

As the graph shows, EQM Midstream’s mean price target has fallen from $73.9 in May 2018 to $52.3 currently. EQM’s mean price target implies an upside potential of 17% from its current price.

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