Equitrans Midstream Corp.

ETRN Details

Equitrans Midstream Corp. (NASDAQ: ETRN) is one of the largest gas gatherers and transmission pipeline operators in the US (in the Appalachian Basin). The company operates across three lines of business viz. gathering of natural gas, the transmission of natural gas, and freshwater sourcing via pipelines. As of 16th April 2021, the company’s market capitalization stood at USD 3.46 billion.

Clearance to resume Mountain Valley Pipeline (MVP) project: On December 23, 2020, the company’s MVP project received permission from the Federal Energy Regulatory Commission (FERC) to restart construction work of another 17 miles near the Jefferson National Forest. Further, upon dissent from two commissioners in March 2021, the FERC maintained that the work could resume while certain federal approvals are being obtained. The MVP is expected to have a transmission capacity of 2 Billion cubic feet (Bcf) per day and it would provide services to several regions of the United States. The company plans to complete the interstate pipeline by the end of 2021.

FY20 Results: The company reported a 4.6% growth in total gathered volume to 8,205 billion British thermal units (BBtu) in FY20 as compared to that of 7,844 BBtu in FY19. For its transmission segment, the company stated a 1.2% increase in its total transmission volume throughput to 2,948 BBtu in FY20 as compared to 2,913 BBtu in FY19. For its water segment, the company reported a growth of 6% in total water volumes to 1,916 million gallons (MMgal) in FY20 as compared to 1,808 MMgal in FY19. Net income was USD 364.4 million in FY20 compared with a net loss of USD 203.7 million in FY19.

Key Risks: As of FY20, the company had a debt of USD 7.23 billion with cash and cash equivalents of USD 208 million. The debt to equity ratio was at a high 2.25x. On the positive side, interest coverage stood at 2.88x, suggesting ETRN can responsibly service its obligations.

The company’s largest customer is EQT Corporation, and it accounted for 74%, 69%, 64%, and of the company’s total revenues for the FY18, FY19, and FY20, respectively. The concentration of the revenue from a customer can hamper the company's operational and financial strength in the future.

ETRN FY21 Outlook (Source: Company Press Release, February 23, 2021) 

Valuation Methodology: EV/ EBITDA Multiple Based Relative Valuation

Data Source: Refinitiv, Thomson Reuters, 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.

Stock Recommendation: ETRN has declined by 17.11% in the past 9 months and is currently leaning toward the lower band of the 52-week range of USD 6.23 to USD 11.66. We have valued the stock using the EV/EBITDA multiple based relative valuation method and arrived at a target price of USD 9.11. Considering the current attractive trading levels, project pipelines, and associated risks, we recommend a “BUY” rating on the stock at the closing price of USD 7.99, down by 1.60% as of 16^th April 2021.

ETRN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)