Photo by Adam Nowakowski on Unsplash
 

As part of our ongoing series at The Acquirer’s Multiple, each week we spotlight a stock from our Stock Screeners that might be a deeply undervalued opportunity hiding in plain sight. This week’s spotlight is Hess Midstream LP (HESM) — a fee-based midstream operator with long-lived infrastructure assets, highly visible cash flows, and a capital-return profile that continues to appeal to income-focused value investors.
 

Business Overview

Hess Midstream owns and operates gathering, processing, storage, and export infrastructure primarily serving Hess Corporation’s Bakken operations. Its assets include natural gas gathering systems, processing plants, crude oil and water handling, and export terminals. The partnership benefits from long-term, take-or-pay style contracts that insulate cash flows from commodity price volatility.

Unlike upstream producers, HESM’s economics are driven by volumes rather than oil prices. This structure results in stable revenues, predictable margins, and strong free cash flow conversion — characteristics that tend to be undervalued during periods when energy sentiment is driven by commodity cycles rather than infrastructure fundamentals.
 

What Is IV/P (Intrinsic Value to Price)?

IV/P measures whether a stock offers more intrinsic value than the price investors are currently paying. It blends earnings power, reinvestment needs, and capital-return policies to estimate conservative intrinsic value.

IV/P > 1 → Undervalued
IV/P < 1 → Overvalued

HESM’s IV/P of 1.20 implies intrinsic value is estimated to be roughly 20% above the current market price — a solid margin of safety for a fee-based midstream business.
 

Supporting Metrics

Market Cap: ≈ US$ 4.0–4.5B
Enterprise Value: ≈ US$ 7.5–8.0B
Free Cash Flow (TTM): ≈ US$ 710M
FCF Yield: ≈ 9–10% on EV
Acquirer’s Multiple: AM = 8

An AM of 8 places HESM firmly in value territory for a midstream operator with stable cash flows. The market appears to be pricing the business as a low-growth yield vehicle, despite its continued volume growth and expanding asset base.
 

Revenue & Profitability

HESM continues to demonstrate consistent profitability:

TTM Revenue: ≈ US$ 1.6B
Operating Income: ≈ US$ 1.0B
Operating Margin: ≈ 60%+
Net Income: ≈ US$ 330M
Diluted EPS (TTM): ≈ 2.80

High operating margins reflect the partnership’s fee-based model and limited exposure to operating cost inflation. Even in weaker energy price environments, earnings remain resilient.
 

Balance Sheet & Cash Flow

Total Debt: ≈ US$ 3.8B
Net Debt: ≈ US$ 3.7B
Net Debt / EBITDA: manageable for midstream peers

Operating Cash Flow (TTM): ≈ US$ 1.0B
Capital Expenditure (TTM): ≈ US$ 280M
Free Cash Flow (TTM): ≈ US$ 710M

HESM generates ample free cash flow after maintenance and growth capex, supporting both distributions and debt management.
 

Capital Returns

Hess Midstream prioritizes returning capital to unitholders through a growing cash distribution. Dividends paid over the past year totalled roughly US$ 320–330M, comfortably covered by free cash flow. Buybacks remain opportunistic but secondary to income generation.
 

Why HESM Might Be Undervalued

The market continues to discount midstream names alongside commodity-sensitive energy stocks. HESM’s valuation does not fully reflect its stable contracts, strong margins, and consistent free cash flow. An IV/P of 1.20 and an AM of 8 suggest the partnership is priced more like a slow-decline utility than a cash-generative infrastructure business with growth optionality.
 

Conclusion

With a solid IV/P of 1.20, an attractive Acquirer’s Multiple of 8, and over US$ 700M in annual free cash flow, Hess Midstream LP screens as a compelling value-oriented income opportunity. Its predictable cash flows, disciplined capital program, and durable asset base make it a strong candidate for investors seeking stability, yield, and a reasonable margin of safety within the energy infrastructure space.

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