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Midstream Stocks Outperformed the Energy Space Last Week

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Energy stocks

Last week (ended July 5), midstream stock EnLink Midstream LLC (ENLC) outperformed the energy space. The stock is included in the following ETFs:

  • the Alerian MLP ETF (AMLP)
  • the Energy Select Sector SPDR ETF (XLE)
  • the VanEck Vectors Oil Services ETF (OIH)
  • the VanEck Vectors Oil Refiners ETF (CRAK)
  • the SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

Midstream stocks lead energy space

Last month, JPMorgan Chase slashed its price target for ENLC by $1 to $12. Midstream stocks Enable Midstream Partners LP (ENBL), Western Midstream Partners LP (WES) and Shell Midstream Partners (SHLX) were among the energy space’s top five gainers. On June 11, Credit Suisse downgraded SHLX to “under-perform” from “neutral” and reduced its target price by $5 to $17. On June 6, Mizuho initiated coverage of SHLX with a “neutral” rating and target price of $22. Analysts’ mean target price of $20.90 for Shell Midstream Partners implies a ~3% downside based on its last closing price.

Broader markets’ 1.7% rise and bond yields‘ decline may have boosted the Alerian MLP ETF (AMLP)AMLP’s dividend yield is 7.8%, the highest in the energy sub-sector. Midstream stocks are preferred for their higher dividend yields. The SPDR S&P 500 ETF’s (SPY) dividend yield is 1.8%, and ENLC’s, ENBL’s, WES’s, and SHLX’s dividend yield is 10.4%, 8.9%, 7.6%, and 7.7%, respectively.

The VanEck Vectors Oil Services ETF (OIH) fell 1.7% last week, the second most among energy sub-sector ETFs. US crude oil prices fell 1.6%.

Ensco Rowan (ESV) rose the second most among energy stocks last week, outperforming the oilfield service sub-sector and oil. On July 2, ESV announced it will change its name to Valaris and ticker to VAL, effective July 31. On June 26, UBS reduced its target price on ESV by $9 to $13. Ensco Rowan is set to release its Q2 2019 results on August 1. Analysts expect its adjusted net loss to contract by 25.4% sequentially in the quarter.

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