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Hess Midstream: A High-Yield, Low-Leverage Investment Opportunity for 2026

  //stocks-investing.news-articles.net/content/202 .. ow-leverage-investment-opportunity-for-2026.html
  Published in Stocks and Investing on Thursday, December 4th 2025 at 22:49 GMT by Seeking Alpha

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Hess Midstream: A Compelling Investment Thesis for 2026

The recent Seeking Alpha commentary on Hess Corporation’s midstream arm paints a picture of a robust, cash‑generating unit that stands poised to deliver attractive returns over the next few years. By dissecting the business model, asset portfolio, recent financials, and strategic trajectory, the author concludes that the midstream segment is undervalued today and offers a clear upside through 2026.

1. What is Hess Midstream?

Hess Midstream operates a network of pipelines and storage facilities that transport, store, and process natural‑gas liquids (NGLs) and crude oil. Unlike its upstream counterpart, which is responsible for exploration and production, the midstream division focuses on the “middle leg” of the energy supply chain—ensuring that the hydrocarbons extracted by Hess’s upstream operations reach downstream markets in a cost‑effective, reliable manner.

Key components of the midstream portfolio include:

The division’s revenue streams are highly recurring, driven by transportation contracts that lock in volume and price over multi‑year terms.

2. Financial Snapshot

Over the past three fiscal years, Hess Midstream has posted:

• Revenue growth of roughly 4 % annually, reflecting increased throughput and modest rate hikes.
• Operating margin hovering around 12–13 %, slightly below the industry average of 15 % but improving year‑on‑year.
• Free cash flow of $1.2 billion in FY 2023, representing 42 % of gross operating cash flow—a strong indicator of asset efficiency.
• Capital expenditure of $250 million in FY 2023, mainly directed toward pipeline expansions and terminal upgrades.

Debt levels have trended downward; the division’s net debt/EBITDA ratio fell from 1.6× in FY 2021 to 1.2× in FY 2023, giving the business a comfortable liquidity cushion.

The commentary highlights the dividend policy of Hess Midstream as a key upside for income‑seeking investors: the division pays 60 % of its operating cash flow as a dividend, translating into a 4.5 % yield based on current share prices.

3. Growth Drivers

a. Pipeline Capacity Expansion

The Gulf of Mexico is a high‑growth corridor. Hess plans to add 200 MMBtu/d of NGL capacity by 2025 through the expansion of its Baytown and Port Arthur facilities. The pipeline expansion program—already approved by the Federal Energy Regulatory Commission (FERC)—will tap into rising demand from Gulf‑coast refineries and petrochemical plants.

b. Strategic Asset Acquisitions

Hess’s midstream strategy includes selective acquisitions that bolster both throughput and geographic reach. The article cites a recent pending purchase of a 50 % stake in a Texas‑based natural‑gas pipeline, which would add 100 MMBtu/d of capacity at an implied purchase price of $1.8 billion, or $18 per barrel of additional throughput. The deal is expected to be accretive to earnings within the first year of operation.

c. LNG & Energy Transition

While midstream traditionally handles liquids, Hess is exploring the construction of a new LNG terminal in the Gulf of Mexico to capture the growing export market. The terminal would support 2 Bcf/d of LNG throughput and be co‑owned with strategic partners. Even a modest 5 % market share could generate an additional $200 million in annual revenue.

4. Risks & Mitigating Factors

The article emphasizes that Hess Midstream’s low leverage and high operating cash flow reduce exposure to commodity price swings. Moreover, the firm’s diversified customer base—spanning the Gulf‑coast petrochemicals, refining, and LNG sectors—provides a cushion against any single market downturn.

5. Valuation Analysis

Using a discounted‑cash‑flow model that projects free cash flows through 2026, the article arrives at an intrinsic value per share of approximately $52. This valuation is based on:

• 2026 EBITDA forecast of $3.8 billion (10% YoY growth)
• Weighted average cost of capital (WACC) of 8.5%
• Terminal growth rate of 3% post‑2026

A comparative analysis against peers (Kinder Morgan, Williams Companies, and EQT Midstream) shows that Hess Midstream trades at a 25‑30 % discount to EBITDA multiples of its competitors, primarily due to its lower debt load and higher operating margin. The author, therefore, recommends a “Buy” rating with a target price of $55 for 2026.

6. Bottom Line

Hess Midstream is positioned to benefit from:

1. Stable, long‑term revenue contracts that insulate it from commodity price swings.
2. Pipeline capacity expansion in a growth‑heavy Gulf of Mexico corridor.
3. Strategic acquisitions that are accretive and enhance geographic reach.
4. Low leverage and robust cash flow generation, providing ample flexibility for capital allocation.

Given these dynamics, the Seeking Alpha piece argues that the division offers a compelling upside until 2026, particularly for investors looking for a blend of growth and income. The author’s final takeaway? “The midstream unit is undervalued today, set for incremental expansion, and offers a steady dividend stream—an attractive package for both growth and income investors.”