Equitrans Midstream Corp.

ETRN Details

Equitrans Midstream Corp. (NYSE: ETRN) provides midstream services to EQT Corporation and multiple third parties in Pennsylvania, West Virginia, and Ohio. It is one of the largest gas gatherers in the U.S. (in the Appalachian Basin). ETRN's operating segments are 1) Gathering, which comprises natural gas gathering, transmission and storage services; 2) Transmission, which offers transmission of natural gas through interstate pipelines and storage systems that are regulated by Federal Energy Regulatory Commission (FERC); and 3) Freshwater, which includes water services assets such as water pipelines, pumping stations, take point facilities that support well completion activities and collect flow back and produced water for recycling and disposal purposes.

Q2FY21 Results: The company reported a growth of 2.26% in operating revenues to USD 348.30 million in Q2FY21 (ended June 30, 2021) compared to USD 340.59 million in Q2FY20, primarily due to an increase in volume in Gathering and Transmission segments. The company reported a 3.19% improvement in adjusted EBITDA to USD 271.55 million in Q2FY21 vs. USD 263.15 million in Q2FY20. Net income fell to USD 22.49 million in Q2FY21 compared to USD 26.99 million in Q2FY20 due to higher net interest expense and additional impairment of long-lived assets charges. As of June 30, 2021, the company had cash and cash equivalents of USD 242.64 million and total debt of USD 7.08 billion.

Key Risks: ETRN's largest customer, EQT, accounted for ~64% of its revenue in FY20. Any unfavorable changes in the drilling and production activity of EQT could also impact ETRN's financial performance. In addition, all the company assets are located in the Appalachian Basin in Pennsylvania, West Virginia, and Ohio. Any disruption in these core operating areas could adversely affect the operations and profitability of the company.

Outlook: As of Q2FY21, ETRN anticipates attaining adjusted EBITDA of USD 245 - 265 million, with net income ranging between USD 55 - 75 million during Q3FY21. For FY21, ETRN expects clocking adjusted EBITDA in the range of USD 1.07 - 1.14 billion, with net income to the tune of USD 215 -285 million. It also forecasts free cash flow of USD 380 - 450 million and retaining free cash flow of USD 120 -190 million in FY21.

Valuation Methodology:  EV/ EBITDA Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

ETRN Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: ETRN stock price fell 6.58% in the past month and is currently trading at the mid-point of its 52-week range of USD 6.23 to USD 11.66. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 45.62. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 9.55. Considering the slight correction in the stock price, strong dividend yield and profit margins, positive outlook, and current valuation, we recommend a "Hold" rating on the stock at the current price of USD 8.25, up 3.19% as of August 03, 2021, at 12.21 PM ET.

* All forecasted figures and Industry Information have been taken from REFINITIV.

* The reference data in this report has been partly sourced from REFINITIV.