Hess Midstream LP (HESM) Stock Analysis and Metrics

Hess Midstream

NYSE: HESM

$39.28 ▼ -1.25 (-3.08%)

At close: Aug 17, 2026 · 12:54 PM UTC

Financial Ratios

Market Cap5.05 Bn

P/E8.13

P/S3.13

Div. Yield0.05

ROIC (Qtr)0.06

Total Debt (Qtr)3.72 Bn

Revenue Growth (1y) (Qtr)-3.67

Add ratio to table…

About

Hess Midstream LP is a growth oriented limited partnership that owns operates develops and acquires a diverse set of midstream assets and provides fee based services to its sponsor and third party customers. The company's asset base consists of natural gas gathering pipelines crude oil gathering systems water gathering and disposal facilities gas processing plants fractionation units storage terminals and export infrastructure. These assets are primarily located in the Bakken and Three Forks shale plays of the Williston Basin in North Dakota. Hess Midstream LP focuses on delivering reliable midstream infrastructure that supports the production growth of its sponsor and other producers in the region.

The company generates revenue primarily through fee based services for natural gas gathering compression processing and natural gas liquids fractionation crude oil gathering terminaling loading and transportation propane storage and terminaling and produced water gathering and disposal. These fees are earned under long term agreements with Chevron that include minimum volume commitments inflation escalators and fee recalculation mechanisms designed to provide stable cash flows. In addition the company collects fees from third party volumes that are contracted directly with Hess Midstream LP or delivered under its agreements with Chevron. Pass through revenues are recognized for certain third party costs such as rail transportation electricity and water trucking and disposal where the company acts as a conduit and records revenue equal to the incurred cost.

The company operates through the following three reportable segments: gathering processing and storage and terminaling and export. Each segment represents a distinct set of midstream activities that together support the full value chain from wellhead to market. The gathering segment handles the collection and initial compression of hydrocarbons and water. The processing and storage segment treats natural gas separates natural gas liquids and provides storage for propane and other products. The terminaling and export segment prepares crude oil and natural gas liquids for loading onto rail or other transport modes and supports export activities. This segmentation allows Hess Midstream LP to manage operations allocate capital and report performance effectively.

• Gathering segment provides natural gas and crude oil gathering services compression and produced water gathering and disposal.

• Processing and storage segment processes natural gas fractionates natural gas liquids stores and terminals propane and provides related storage services.

• Terminaling and export segment terminals and loads crude oil and natural gas liquids transports crude oil and natural gas liquids stores and terminals propane and supports export activities.

The company benefits from long term fee based agreements with Chevron that include minimum volume commitments inflation escalators and fee recalculation mechanisms providing cash flow stability and downside protection. Its asset concentration in the Bakken a major oil and gas producing region gives it a strategic location relative to prolific drilling activity. While it competes with other midstream service providers in the Bakken its fee based model and dedicated acreage under sponsor contracts reduce direct commodity price exposure. The investment grade rating assigned to its debt enhances financial flexibility and lowers borrowing costs compared to many peers that remain below investment grade. These factors position Hess Midstream LP as a stable cash flow generator within the midstream sector.

The company primarily serves Chevron Corporation under long term fee based agreements and also provides services to Hess Corporation and its affiliates as the sponsor. In addition Hess Midstream LP gathers processes terminals and disposes of volumes for third party producers operating in the Bakken including independent exploration and production companies. This mixed customer base combines the stability of sponsor contracts with the upside potential of third party tie ins.

Investment Thesis

▲ Bull case

Hess Midstream's strategic positioning within Chevron's optimized Bakken development plan creates a durable competitive advantage that the market is underestimating, as the shift to longer laterals not only reduces well connectivity capital expenditures but also enhances the economic life of existing infrastructure, allowing the company to generate significantly higher free cash flow per unit of throughput than historical averages suggest; this operational efficiency gain is structural and permanent, directly supporting the raised 2026 adjusted free cash flow guidance of $910 million to $960 million, which represents a 20% year-over-year increase at the midpoint, and enables approximately $280 million of excess adjusted free cash flow after distributions for incremental shareholder returns and debt repayment, a figure that implies a free cash flow yield exceeding 10% based on current enterprise value and is sustainable through 2028 due to contractual volume protections. The company's contract structure provides exceptional downside protection and predictable cash conversion that is not fully appreciated by investors, with 85% of revenues derived from fixed-fee arrangements and cost-of-service contracts for terminaling and water gathering extending through 2033, ensuring stable returns regardless of commodity price volatility; additionally, the terminaling segment's tariff mechanism, which resets annually to target a mid-teen return based on projected CapEx, OpEx, and throughput, creates a self-correcting earnings floor that has already demonstrated resilience through weather-related disruptions, as evidenced by the maintenance of an 83% gross adjusted EBITDA margin—well above the 75% target—even during the sequential decline in Q1 FY26 results, indicating that the underlying earnings power of the business is stronger than reported quarterly fluctuations suggest. The deferral of material cash taxes until after 2028, resulting from recent IRS guidance on the corporate alternative minimum tax, represents a significant and underrecognized catalyst that effectively increases the company's after-tax cash flow by approximately $15 million annually starting in 2026, which directly contributes to the excess free cash flow available for shareholder returns and debt reduction; this tax timing benefit, combined with the leverage trajectory projecting a decline to near 2.5x by 2028 through EBITDA growth and debt repayment, enhances financial flexibility and reduces risk, yet the market appears to be pricing HESM as if it faces near-term tax liabilities or limited capital allocation options, when in reality the combination of MVC-backed volume visibility, inflation-linked fee escalators, and disciplined capital expenditure guidance of approximately $105 million for 2026 supports a durable model of growing distributions and incremental returns that is unlikely to be disrupted by upstream production plateaus at 200,000 barrels of oil equivalent per day.

Hess Midstream's strategic positioning within Chevron's optimized Bakken development plan creates a durable competitive advantage that the market is underestimating, as the shift to longer laterals not only reduces well connectivity capital expenditures but also enhances the economic life of existing infrastructure, allowing the company to generate significantly higher free cash flow per unit of throughput than historical averages suggest; this operational efficiency gain is structural and permanent, directly supporting the raised 2026 adjusted free cash flow guidance of $910 million to $960 million, which represents a 20% year-over-year increase at the midpoint, and enables approximately $280 million of excess adjusted free cash flow after distributions for incremental shareholder returns and debt repayment, a figure that implies a free cash flow yield exceeding 10% based on current enterprise value and is sustainable through 2028 due to contractual volume protections. The company's contract structure provides exceptional downside protection and predictable cash conversion that is not fully appreciated by investors, with 85% of revenues derived from fixed-fee arrangements and cost-of-service contracts for terminaling and water gathering extending through 2033, ensuring stable returns regardless of commodity price volatility; additionally, the terminaling segment's tariff mechanism, which resets annually to target a mid-teen return based on projected CapEx, OpEx, and throughput, creates a self-correcting earnings floor that has already demonstrated resilience through weather-related disruptions, as evidenced by the maintenance of an 83% gross adjusted EBITDA margin—well above the 75% target—even during the sequential decline in Q1 FY26 results, indicating that the underlying earnings power of the business is stronger than reported quarterly fluctuations suggest. The deferral of material cash taxes until after 2028, resulting from recent IRS guidance on the corporate alternative minimum tax, represents a significant and underrecognized catalyst that effectively increases the company's after-tax cash flow by approximately $15 million annually starting in 2026, which directly contributes to the excess free cash flow available for shareholder returns and debt reduction; this tax timing benefit, combined with the leverage trajectory projecting a decline to near 2.5x by 2028 through EBITDA growth and debt repayment, enhances financial flexibility and reduces risk, yet the market appears to be pricing HESM as if it faces near-term tax liabilities or limited capital allocation options, when in reality the combination of MVC-backed volume visibility, inflation-linked fee escalators, and disciplined capital expenditure guidance of approximately $105 million for 2026 supports a durable model of growing distributions and incremental returns that is unlikely to be disrupted by upstream production plateaus at 200,000 barrels of oil equivalent per day.

▼ Bear case

Hess Midstream's full-year 2026 net income and adjusted EBITDA guidance remains flat at the midpoint versus 2025, signaling limited organic growth potential despite management's emphasis on free cash flow generation, and this stagnation is exacerbated by the company's reliance on Chevron's Bakken production plateau at approximately 200,000 barrels of oil equivalent per day, which caps throughput upside and makes incremental volume gains dependent on third-party utilization—a segment that remains small and unpredictable, as evidenced by the first-quarter third-party gas throughput increase being described as merely "normal optionality" with no indication of scalable growth, thereby undermining the thesis that operational efficiencies alone can sustain meaningful long-term expansion beyond cost-cutting. The company's heavy dependence on fixed-fee and cost-of-service contracts, while providing stability, also creates significant upside limitation, as tariff resets through 2033 are designed to return a targeted mid-teen return based on projected costs and volumes, meaning that any efficiency gains from longer laterals or reduced well connectivity are likely to be offset by downward tariff adjustments in the terminaling and water gathering segments, effectively transferring the benefits of operational improvements to Chevron rather than allowing Hess Midstream to retain incremental margin expansion, a dynamic that was hinted at in the Q&A when management acknowledged that tariffs "flex down" with lower CapEx but did not address how this impacts their ability to grow EBITDA independent of volume or inflation. Although leverage is projected to decline to near 2.5x by 2028, this assumes consistent EBITDA growth and disciplined debt repayment, yet the company's capital expenditure guidance of approximately $105 million for 2026 leaves little room for error if upstream activity declines faster than anticipated or if weather-related disruptions become more frequent, and with net interest expense guidance of $210 million for the full year representing a significant fixed cost, any shortfall in adjusted EBITDA—currently guided between $1.225 billion and $1.275 billion—could quickly erode the cushion for distributions and debt repayment, particularly since the $280 million of excess adjusted free cash flow after distributions is highly sensitive to even minor deviations in performance, leaving minimal margin for error in a business model that offers little strategic flexibility for reinvestment or diversification beyond its current asset base.

Hess Midstream's full-year 2026 net income and adjusted EBITDA guidance remains flat at the midpoint versus 2025, signaling limited organic growth potential despite management's emphasis on free cash flow generation, and this stagnation is exacerbated by the company's reliance on Chevron's Bakken production plateau at approximately 200,000 barrels of oil equivalent per day, which caps throughput upside and makes incremental volume gains dependent on third-party utilization—a segment that remains small and unpredictable, as evidenced by the first-quarter third-party gas throughput increase being described as merely "normal optionality" with no indication of scalable growth, thereby undermining the thesis that operational efficiencies alone can sustain meaningful long-term expansion beyond cost-cutting. The company's heavy dependence on fixed-fee and cost-of-service contracts, while providing stability, also creates significant upside limitation, as tariff resets through 2033 are designed to return a targeted mid-teen return based on projected costs and volumes, meaning that any efficiency gains from longer laterals or reduced well connectivity are likely to be offset by downward tariff adjustments in the terminaling and water gathering segments, effectively transferring the benefits of operational improvements to Chevron rather than allowing Hess Midstream to retain incremental margin expansion, a dynamic that was hinted at in the Q&A when management acknowledged that tariffs "flex down" with lower CapEx but did not address how this impacts their ability to grow EBITDA independent of volume or inflation. Although leverage is projected to decline to near 2.5x by 2028, this assumes consistent EBITDA growth and disciplined debt repayment, yet the company's capital expenditure guidance of approximately $105 million for 2026 leaves little room for error if upstream activity declines faster than anticipated or if weather-related disruptions become more frequent, and with net interest expense guidance of $210 million for the full year representing a significant fixed cost, any shortfall in adjusted EBITDA—currently guided between $1.225 billion and $1.275 billion—could quickly erode the cushion for distributions and debt repayment, particularly since the $280 million of excess adjusted free cash flow after distributions is highly sensitive to even minor deviations in performance, leaving minimal margin for error in a business model that offers little strategic flexibility for reinvestment or diversification beyond its current asset base.

Segments Breakdown of Revenue (2025)

Peer Comparison

Companies in the Oil & Gas Midstream

S.No.	Ticker	Company	Market Cap	P/E	P/S	Total Debt (Qtr)
1	EP-PC	Kinder Morgan, Inc.	112.69 Bn	31.56	6.27	32.25 Bn
2	ENB	Enbridge Inc	111.15 Bn	26.96	1.84	79.93 Bn
3	EPD	Enterprise Products Partners L.P.	82.76 Bn	13.00	1.42	33.23 Bn
4	ET	Energy Transfer LP	72.45 Bn	14.35	0.85	68.42 Bn
5	TRP	Tc Energy Corp	65.93 Bn	26.80	12.92	35.14 Bn
6	MPLX	Mplx Lp	60.29 Bn	12.70	4.56	25.64 Bn
7	OKE	Oneok Inc /New/	59.71 Bn	16.32	1.52	33.00 Bn
8	TRGP	Targa Resources Corp.	58.99 Bn	26.01	3.52	19.58 Bn

Research Tools

Datasets

Plans

Developers

About

Investment Thesis

Related and Nonrelated Parties Breakdown of Revenue (2025)

Segments Breakdown of Revenue (2025)

Peer Comparison

Research Tools

Datasets

Plans

Developers

About

Investment Thesis

Related and Nonrelated Parties Breakdown of Revenue (2025)

Segments Breakdown of Revenue (2025)

Peer Comparison

Create an account

Sign In

Reset Password