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Stock Spotlight

EQT Midstream differs from pack

Recent Price
$75
Dividend
$2.98
Yield
4.0%
P/E Ratio
14
Shares (millions)
78
Long-Term Debt as % of Capital
29.5%
52-Week Price Range
$85.03 - $56.52



EQT Midstream Partners' ($75; EQM) network of storage facilities and pipelines funnels natural gas to customers and cash distributions to investors.

When we added the stock to the Long-Term Buy List in the May 23 issue, more than one subscriber must have wondered, "Why recommend an energy stock now?" After all, the average Overall score for the S&P 1500 Index's 88 energy stocks has slumped to 27; before 2016 it had never ended a month below 30.

But EQT Midstream, also a member of our Top 15 Utilities Portfolio, is an oddity among S&P 1500 energy stocks.

• The fate of most energy firms depends heavily on the price of oil or natural gas. EQT Midstream generates revenue from long-term contracts and usage fees, limiting its direct exposure to fluctuations in commodity prices.

• Not one S&P 1500 energy stock increased per-share profits and revenue more than 5% over the past 12 months. EQT Midstream, not a part of the index, grew both more than 20%.

• More energy stocks cut their dividends in the past 12 months (25) than raised them (21). EQT Midstream increased its distribution 23%.

• EQT Midstream shares have returned 19% including dividends over the past six months; energy stocks have averaged a 2% loss.

• Stocks with high Quadrix ranks are scarce in the energy sector. Just nine of the 89 score above 50 Overall, and only three score above 90. None top 60 for all six Quadrix categories, as EQT Midstream does. The MLP's Overall rank, currently 94, has exceeded 80 in each of the past 13 months.

EQT Midstream's corporate structure is also untraditional. It was formed by EQT Corp. ($78; EQT) in 2012 to operate midstream assets in the Appalachian Basin — an attractive location, given its proximity to the Marcellus and Utica shale formations. The two companies remain closely linked; EQT Midstream has relied on EQT Corp. for 69% to 78% of annual revenue in each of the past four years.

As an MLP, EQT Midstream must generate at least 90% of its cash flow from real estate, natural resources, or commodities in order to avoid paying income taxes. Most MLPs convert those tax savings into generous distributions for investors. Unfortunately, MLPs also pass on their tax complexity to investors, who will receive a Form K-1 at tax time.

For the March quarter, EQT Midstream grew net income per limited partner unit 18%, comfortably ahead of the consensus. Results benefited from capacity growth and higher transmission fees. EQT Midstream raised its 2016 guidance for adjusted operating income and distributable cash flow. Management also said it expects to distribute $3.19 per unit to investors this year, up 21% from 2015, and reaffirmed plans to increase its distribution another 20% in 2017. The MLP currently yields 3.9%.

At 16 times trailing earnings, the EQT Midstream trades at a 33% discount to its three-year average. It also trades at 15 times estimated 2016 profits, an 11% discount to the median S&P 1500 energy stock.

An annual report for EQT Midstream Partners LP can be obtained at 625 Liberty Ave., Suite 1700, Pittsburgh, PA 15222; (412) 553-5700;  www.eqtmidstreampartners.com.


 

EQT Midstream Partners

 
Quarter
Per-Share Earnings
Sales Change
Quarterly Price Range
P/E Ratio Range
Mar '16
$1.39
vs.
$1.18
17%
$77.70
-
$57.88
17 - 12
Dec '15
1.26
vs.
1.12
20%
79.10
-
56.52
17 - 12
Sep '15
1.12
vs.
0.85
23%
83.68
-
59.21
20 - 14
Jun '15
1.12
vs.
0.81
32%
89.47
-
76.69
23 - 19

 
Year (Dec.)
Sales (Bil.)
Per-Share Earnings*
Per-Share Dividend
52-Week Price Range
P/E Ratio Range
2015
$0.61
$4.70
$2.64
$92.09
-
$56.52
20 - 12
2014
0.39
3.52
2.02
102.51
-
57.62
29 - 16
2013
0.19
2.46
1.55
59.39
-
31.30
24 - 13
2012
0.14
1.03
0.35
31.39
-
22.58
30 - 22

 
Quadrix Scores†
Overall
Momentum
Value
Quality
Financial Strength
Earnings Estimates
Performance
94
90
72
98
97
20
59

* Earnings exclude special items.
NM Not Meaningful.
† Quadrix® scores are percentile ranks, with 100 the best.
e Dividend and yield estimated.

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EQT Midstream differs from pack

Wednesday, June 22, 2016

EQT Midstream Partners' ($75; EQM) network of storage facilities and pipelines funnels natural gas to customers and cash distributions to...

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