Is Hess Midstream (HESM) Pricing Reflect Its Cash Flow Strength And Recent Share Performance

• This article walks through key clues in a clear, practical way for readers wondering whether Hess Midstream's share price reflects its true value, or if the market is mispricing its future potential.
• The stock last closed at US$34.97, with returns of 0.9% over 30 days, 0.9% year to date, an 8.8% decline over 1 year, and gains of 49.4% over 3 years and 135.1% over 5 years.
• Recent market attention on Hess Midstream has focused on how its fee based midstream model and long term contracts with Hess Corporation shape expectations for cash flow stability and capital returns. Investors have also been weighing sector wide news around US energy infrastructure investment and producer activity, which often influences sentiment toward midstream names like Hess Midstream.
• On our framework it earns a valuation score of 5 out of 6. This sets up a closer look at how different valuation methods stack up for the stock and hints at an even more complete way to think about value that we will come back to at the end.

Find out why Hess Midstream's -8.8% return over the last year is lagging behind its peers.

Approach 1: Hess Midstream Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business could be worth today by projecting its future cash flows and then discounting those back to a present value.

For Hess Midstream, the model uses a 2 Stage Free Cash Flow to Equity approach based on its last twelve months free cash flow of about $714.9 million. Analysts provide specific forecasts for several years, and Simply Wall St extends those projections further out. In this case, projected free cash flow reaches about $731.7 million in 2035, with interim estimates such as $781.8 million in 2026 and $719.8 million in 2030, all in $ and shown on a per year basis.

When those projected cash flows are discounted back, the model arrives at an estimated intrinsic value of about $71.72 per share, compared with a recent share price of $34.97. On this framework, that implies the stock trades at a 51.2% discount to the DCF estimate, which points to meaningful upside potential if the cash flow assumptions play out.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Hess Midstream is undervalued by 51.2%. Track this in your watchlist or portfolio, or discover 877 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Hess Midstream.

Approach 2: Hess Midstream Price vs Earnings

For a consistently profitable company, the P/E ratio is a straightforward way to think about what you are paying for each dollar of earnings. A higher or lower P/E often reflects what the market is baking in for future growth and how much risk investors feel they are taking on.

Hess Midstream trades on a P/E of 12.82x. That sits close to the Oil and Gas industry average of 13.66x, but well below a peer group average of 44.97x. On the surface, that gap to peers can look like a simple value opportunity, although peer multiples alone do not explain differences in growth prospects, balance sheet strength or business risk.

To bring those factors together, Simply Wall St uses a proprietary “Fair Ratio”. For Hess Midstream, this Fair Ratio is 20.43x, which is the P/E level suggested after considering its earnings profile, industry, margins, size and risk characteristics. This tailored yardstick can be more useful than broad peer or industry comparisons because it is specific to the company rather than a one size fits all average. With the current P/E below the Fair Ratio, the shares screen as undervalued on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1424 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Hess Midstream Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which Simply Wall St hosts on the Community page used by millions of investors.

A Narrative is your story about a company, written in numbers, where you lay out what you think its future revenue, earnings and margins could look like, and what that implies for a fair value today.

In practice, a Narrative links three pieces together in a clear chain: the business story you believe, the financial forecast that follows from that story, and the fair value that drops out of those forecasts so you can compare it directly to the current share price.

Because Narratives on Simply Wall St update automatically when new information arrives, such as earnings releases or major news, they can help you quickly see whether your view on Hess Midstream still holds or whether the gap between Fair Value and price has moved enough for you to consider buying, holding or selling.

For example, one Hess Midstream Narrative on the Community page might assume a relatively low fair value based on cautious revenue and margin assumptions, while another might set a higher fair value using more optimistic inputs for the same business.

Do you think there's more to the story for Hess Midstream? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com