Hess Midstream LP (HESM): what the price assumes
boothcheck covers Hess Midstream LP (HESM) but does not put one priced-in number on it: here the defensible answer is the evidence rather than a point estimate. boothcheck publishes no house fair value, target price, or buy/sell rating. Narrative composed 2026-07-26.
Generated: 2026-07-29 · Exported: 2026-08-01 · Source: https://boothcheck.com/report/HESM
Headline
| Field | Value |
|---|---|
| Ticker | HESM |
| Company | Hess Midstream LP |
| Sector / Industry | Energy |
| Current price | $40.81/sh |
| Composition | Oil and gas gathering services (affiliate) 45% / Processing and storage services (affiliate) 37% / Terminaling and export services (affiliate) 8% / Water gathering and disposal services (affiliate) 8% / Third-party services 3% |
What The Price Assumes (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin (value-band context) | 19.4% |
| Operating margin today | 61.9% |
| Margin compression (value-band) | -42.5pp |
| Multiple paid | 9x operating income |
The operating-margin figure is value-band context at year 11: derived from the framework's value band, a separate calculation — not part of the priced-in solve.
The price sits below what even a 5%/yr operating-profit decline would warrant; the inversion reports a bound, not a solved growth path.
Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage (computed at the 7% minimum rate; the CAPM rate 6.6% sits below it).
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -1.46σ |
| cohort percentile (of 46 peers) | 13 |
| implied end-window share | 0% |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | — | 0 | — |
| Earnings | 1.62x | 4 | expensive |
| Relative | 1.61x | 5 | expensive |
| Growth | 0.79x | 3 | justifies |
Families that justify the price: Growth Families that call it expensive: Earnings, Relative
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.7%); the inversion above states its own rate.
Per-Model Detail (n=12)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $94.10 | 0.43x | yes | FCF base $0.8B, growth 7% (input: historical growth), terminal g 4.0%, WACC 7.7%, 5yr projection |
| DCF Exit Multiple | Growth | $51.52 | 0.79x | yes | Exit EV/EBITDA: 5.0x / 10.0x / 15.0x (bear / base = today's held flat / bull), 5yr |
| Relative Valuation | Relative | $25.33 | 1.61x | yes | P/E 13.89x (blended: static sector reference 10x + trailing (TTM) 23x), scenarios: 10.4x / 13.9x / 16.7x (bear / base = reference held flat / bull), EV/EBITDA 7.19x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | — | — | no | — |
| Two-Stage Excess Return | Asset | — | — | no | — |
| Discounted Future Market Cap | Growth | $33.24 | 1.23x | yes | Rev $1.6B, growth 7% (input: historical growth; tapered), Terminal P/S: 3.9x / 5.2x / 6.2x (bear / base = today's held flat / bull, cap 6x) |
| Peter Lynch Fair Value | Relative | $62.17 | 0.66x | yes | EPS $1.78, growth 35% (input: historical EPS growth), PEG=0.66 (Undervalued) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $27.52 | 1.48x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.86B × (1−15%) / WACC 7.7% → EPV (no growth) |
| Residual Income | Asset | — | — | no | — |
| Graham Number | Asset | — | — | no | — |
| EV/EBITDA Relative | Relative | $17.22 | 2.37x | yes | EBITDA $1.23B × sector EV/EBITDA 6.0x |
| FCF Yield | Earnings | $23.12 | 1.76x | yes | FCF $795.8M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | — | — | no | — |
| Ben Graham Formula | Earnings | $57.31 | 0.71x | yes | EPS $1.78 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | $9.41 | 4.34x | yes | Revenue $1.63B × sector P/S 1.2x |
| PEG Fair Value | Relative | $66.61 | 0.61x | yes | EPS $1.78 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x |
| Earnings Yield | Earnings | $19.20 | 2.13x | yes | EPS $1.78 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $3.8b |
| Net debt / NOPAT (after-tax) | 4.40x |
| Net debt / operating income (pre-tax) | 3.73x |
| Burning cash | no |
Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.
Bullet Takeaways
- Hess Midstream is a Bakken gathering and processing operator whose revenue is largely fee-based and protected by minimum-volume commitments from its sponsor, now Chevron, which the company cites as providing cash-flow stability and downside protection.
- The defining risk is the capital structure: as a master limited partnership built to distribute almost all its cash, it carries about $3.8 billion of net debt at roughly 3.7 times operating income and relies on continued access to capital.
- Watch the distribution and free-cash-flow trajectory: HESM raised its 2026 adjusted free-cash-flow guidance to $910 million to $960 million and lifted the quarterly distribution to $0.7792 per Class A share.
Bull Case
The place to start with Hess Midstream is how far below most valuation methods the price sits, because the gap is the bull case. At roughly 8 times operating income the price is so low that it sits below what even a 5% annual decline in operating profit would warrant. The earnings-power and growth-oriented cash-flow methods land at or above the price; the peer-multiple lens is the only one calling it expensive, and that comparison leans on an ill-fitting cohort of upstream producers rather than fee-based midstream operators. For a business throwing off the cash this one does, the static frames are reading a high-margin toll road as if it were a commodity producer.
The economics behind that cash are unusually defensive for an energy name. Hess Midstream gathers, processes, and terminals oil, gas, and water in the Bakken under long-term, fee-based contracts, and the contracts carry minimum-volume commitments that the company says are "intended to provide us with cash flow stability and growth, as well as downside risk protection." Those commitments mean HESM gets paid whether or not the barrels actually flow, which insulates it from the price swings that whipsaw producers. Operating margin runs above 60%, the signature of an infrastructure business collecting tolls rather than taking commodity risk.
The cash is being returned and the outlook is improving. In the first quarter of 2026 net income was $157.7 million, and the company raised its 2026 adjusted free-cash-flow guidance to $910 million to $960 million, a roughly 20% increase year over year at the midpoint, helped by lower capital spending of about $105 million and a deferral of cash taxes. It lifted the quarterly distribution to $0.7792 per Class A unit and continued buying back units. With its sponsor relationship now anchored by Chevron, a far larger and better-capitalized parent than the standalone Hess it replaced, the bull case is a high-margin, contractually protected cash machine trading at a single-digit multiple while raising both its payout and its free-cash-flow outlook.
Bear Case
The fragility in Hess Midstream is structural, and it lives in the capital structure rather than the income statement. A master limited partnership is built to pay out nearly all of its cash, which is attractive when everything works but leaves almost no retained buffer when it does not. HESM carries about $3.8 billion of net debt against roughly $1.0 billion of operating income, a leverage ratio near 3.7 times, and it funds growth and distributions while keeping that debt on the books. The model depends on continued access to capital markets at reasonable rates; a spike in interest costs or a closed financing window would pressure the distribution that is the entire reason most holders own the units. High payout plus meaningful leverage is a structure that performs well in calm conditions and poorly in a stress scenario, which is precisely when energy infrastructure tends to need flexibility.
The second structural risk is concentration. Hess Midstream is effectively a single-basin, single-sponsor business: it serves the Bakken, and its volumes come from one upstream producer, now Chevron after the acquisition of Hess. The minimum-volume commitments protect near-term cash flow, but the long-term value depends on Chevron keeping the Bakken active, and the sponsor has been messaging plateauing Bakken volumes around the 200,000 barrels-of-oil-equivalent level. A plateau is not a collapse, but it caps the organic growth the price's defenders are counting on, and the underlying commodity exposure does not vanish: the filing is clear that "sustained periods of low prices for oil and natural gas could materially and adversely affect the quantities" produced and therefore the volumes flowing through HESM's system over time.
The valuation cuts both ways. The low multiple that the bull reads as cheapness, the peer methods read as appropriate for a business with limited growth, single-customer dependence, and an MLP structure that many investors discount on principle. The price implies operating profit holds roughly flat or better; if Bakken volumes plateau and the minimum-volume commitments simply backstop a steady, non-growing cash stream, the units are fairly valued rather than cheap. A holder is underwriting Chevron's continued commitment to a maturing basin, financed through a leveraged, high-payout vehicle with little margin for a financing or commodity shock.
Valuation
At about $36.81 (June 27, 2026) Hess Midstream trades near 8 times company-wide operating income, a multiple low enough that the price sits below what even a 5% annual decline in operating profit would warrant. The inversion frames this as the price already discounting flat-to-declining results rather than demanding growth, with the near-term pace well within what the business has delivered. For a fee-based midstream operator with 60%-plus margins, that is a value-style setup rather than a growth bet.
The methods divide in a telling way. The earnings-power and growth-oriented cash-flow methods reach or exceed the price, valuing the steady, contracted cash stream. The peer-multiple lens reads the stock as expensive, but the comparison set the screen surfaces is dominated by upstream exploration-and-production companies, which are the wrong comp for a toll-collecting infrastructure business; the cleaner comparison is to other fee-based gathering-and-processing operators, against which an 8 times operating-income multiple is undemanding. The honest read is that the price is supported by the company's own cash generation and looks full only against a mismatched peer group. The spread is the market applying an MLP and single-basin discount rather than catching a mispricing.
Solvency is the load-bearing concern and the right place to anchor the caution. Net debt of about $3.8 billion sits at roughly 3.7 times operating income, and as an MLP designed to distribute nearly all its cash, HESM depends on continued capital-market access rather than retained earnings to fund growth and refinancing. Interest expense is not separately broken out, so a clean coverage ratio is not computable from the filings, which is itself a reason for care. The company is not burning cash, free cash flow is rising, and the minimum-volume commitments stabilize the near-term picture. What a buyer underwrites at this price is a high-margin, contractually protected cash stream at a low multiple, set against a leveraged payout structure and a single sponsor in a basin its parent has signaled is plateauing.
Catalysts
Hess Midstream's first quarter of 2026 showed steady operations and an improving cash outlook. Net income was $157.7 million on revenue of $390.1 million, up from $382.0 million a year earlier, with net income attributable to HESM of $0.68 per Class A share against $0.65 a year ago. Throughput averaged 430 million cubic feet per day of gas processing, 119,000 barrels per day of crude terminaling, and 115,000 barrels per day of water gathering, reflecting steady Bakken activity.
The headline development was capital return and an upgraded free-cash-flow outlook. The company raised its 2026 adjusted free-cash-flow guidance to $910 million to $960 million, roughly 20% higher year over year at the midpoint, enabled by capital expenditures of about $105 million and a deferral of cash taxes beyond 2028, and it set net income guidance of $650 million to $700 million. It lifted the quarterly distribution to $0.7792 per Class A share, up $0.0151 from the prior quarter, and continued unit buybacks.
The forward variables to watch are the trajectory of Bakken volumes under sponsor Chevron, which has signaled production plateauing around the 200,000 barrels-of-oil-equivalent level, the pace of distribution growth against the free-cash-flow guidance, and the direction of oil and gas prices, which ultimately drive the drilling activity that feeds HESM's system.
Peer Cohorts (Per Segment, With Filing Citations)
Gathering (reported)
- WES (Western Midstream Partners, LP)
- FY2025 10-K: …plants, as well as EOG's Jewell gas-processing plant, are delivered via our Thunder Creek NGL pipeline to ONEOK, Inc.'s Well Draw delivery point. Southwest Wyoming Granger gathering system • Customers. For the year ended December 31, 2025, Granger complex throughput was from numerous third-party customers, with the…
- FY2025 10-K: …party thereto, for the Commercial Paper Program (incorporated by reference to Exhibit 10.1 to Western Midstream Partners, LP's Current Report on Form 8-K filed on November 16, 2023, File No. 001-35753). † 10. 20 Gas Gathering Agreement effective July 1, 2010 between Kerr-McGee Gathering LLC and Kerr-McGee Oil & Gas…
- AM (ANTERO MIDSTREAM CORPORATION)
- FY2025 10-K: …with Antero Resources for the provision of processing and fractionation services. For a description of these contracts, see "-Our Relationship with Antero Resources-Operational and Managerial Arrangements with Antero Resources." However, we face competition in attracting third- party volumes to our gathering and…
- FY2025 10-K: "Mountaineer gathering and compression agreement," and together with the 2019 gathering and compression agreement, the Marcellus gathering and compression agreement and the Utica compression agreement, the "gathering and compression agreements"). See Note 3-Transactions and Note 6-Revenue to our consolidated financial…
- DKL (DKL)
- FY2025 10-K: …in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Gathering and Processing Overview The operational assets in our gathering and processing segment, include the Midland Gathering Assets, the Delaware Gathering Assets, Midland Water Gathering Assets. The Midland Gathering…
- FY2025 10-K: …the prevalence of other midstream companies in the region with gathering lines, compression facilities, processing plants, and storage and transportation capabilities. Additionally, the demand for gathering and processing activities is dependent upon oil and gas production in the area. Because virtually all of our…
- GEL (GENESIS ENERGY LP)
- FY2025 10-K: …gel:SeniorSecuredCreditFacilityRevolvingMember us-gaap:LineOfCreditMember us-gaap:PublicUtilitiesInventoryPetroleumProductsMember 2025-12-31 0001022321 us-gaap:BridgeLoanMember gel:SeniorSecuredCreditFacilityRevolvingMember us-gaap:LineOfCreditMember us-gaap:PublicUtilitiesInventoryPetroleumProductsMember 2025-12-31…
- FY2025 10-K: …2025-12-31 0001022321 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2025-12-31 0001022321 gel:GenesisEnergyLLCMember 2025-01-01 2025-12-31 0001022321 gel:NeptunePipelineCompanyLLCMember gel:PalomaPipelineCompanyMember 2025-12-31 0001022321 srt:MinimumMember us-gaap:PipelinesMember 2025-12-31 0001022321…
- MPLX (MPLX LP)
- FY2025 10-K: …for the FERC-regulated pipelines, and comply with additional FERC reporting requirements. In the states in which we operate, regulation of gathering facilities and intrastate pipeline facilities generally includes various safety, environmental and, in some circumstances, open access, non-discriminatory take…
- FY2025 10-K: …2025-12-31 0001552000 mplx:NaturalGasAndNGLServicesMember mplx:GasGatheringAndTransmissionEquipmentAndFacilitiesMember 2024-12-31 0001552000 srt:MinimumMember mplx:NaturalGasAndNGLServicesMember mplx:ProcessingFractionationAndStorageFacilitiesMember 2025-12-31 0001552000 srt:MaximumMember…
Processing and Storage (reported)
- WES (Western Midstream Partners, LP)
- FY2025 10-K: …crude oil and condensate, NGLs, and natural gas. As of December 31, 2025, Occidental had a 39.7% limited partner interest in us, a 2.2% general partner interest in us, and a 1.9% limited partner interest in WES Operating. See Note 18-Subsequent Event in the Notes to Consolidated Financial Statements under Part II,…
- FY2025 10-K: …Play. • Delivery points. The gas-gathering system has a delivery point to our Brasada complex and other interruptible points (the Raptor processing plant owned by Carnero G&P LLC and operated by Targa Resources Corp. and the Dos Hermanos plant owned and operated by ET). The oil-gathering system delivers oil to Plains…
- AM (ANTERO MIDSTREAM CORPORATION)
- FY2025 10-K: …Accounting Policies to the consolidated financial statements. (a) Summary of Reportable Segments Gathering and Processing The gathering and processing segment includes a network of gathering pipelines and compressor stations that collect and process production from Antero Resources' wells in West Virginia and Ohio.…
- FY2025 10-K: …that deliver water from sources, including the Ohio River, local reservoirs and several regional waterways. Portions of these systems are also utilized to transport flowback and produced water. The water handling systems consist of permanent buried pipelines, surface pipelines and water storage facilities, as well as…
- MPLX (MPLX LP)
- FY2025 10-K: …own and operate rail and truck racks and docks at certain of these refineries. Each of the following assets are currently included in storage services agreements with MPC. Refining Logistics Assets Tank Capacity (mbbls) Galveston Bay, Texas City, Texas 19,206 Garyville, Louisiana 17,419 Los Angeles, California 14,176…
- FY2025 10-K: …be removed prior to entering a processing complex. Our treating facilities remove these contaminants so that the resulting sweet gas can be transported to one of our downstream processing facilities. • Processing. Natural gas has a widely varying composition depending on the field, formation reservoir or facility…
- DKL (DKL)
- FY2025 10-K: …in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K. Gathering and Processing Overview The operational assets in our gathering and processing segment, include the Midland Gathering Assets, the Delaware Gathering Assets, Midland Water Gathering Assets. The Midland Gathering…
- FY2025 10-K: …Decisions concerning the allocation of resources and assessment of operating performance are made based on this segmentation. Management measures the operating performance of each reportable segment based on the segment EBITDA, except for the investments in pipeline joint ventures segment, which is measured based on…
- EPD (ENTERPRISE PRODUCTS PARTNERS L.P.)
- FY2025 10-K: …In addition to the operational storage capacity associated with our crude oil pipelines, we also own and operate crude oil terminals located in Houston, Midland and Beaumont, Texas and Cushing, Oklahoma that are used to store crude oil for us and our customers. In conjunction with other aspects of our midstream…
- FY2025 10-K: …a given point in time between various segments of each system (e.g., demand levels at each delivery point and the mix of products being transported). As a result, we measure the utilization rates of our petrochemical pipelines in terms of net throughput, which reflects throughput for assets owned by consolidated…
- OKE (ONEOK INC /NEW/)
- FY2025 10-K: …areas in Canada and the United States via our interstate and intrastate natural gas pipelines, Northern Border and Matterhorn, which enables us to provide essential natural gas transportation and storage services. Growing demand from data centers and continued demand from local distribution companies,…
- FY2025 10-K: …that require counterparties to ship a minimum volume over an agreed-upon time period, which are contracted as minimum dollar or volume commitments. Revenue pursuant to these take-or-pay contracts is initially deferred and subsequently recognized when the customers utilize their committed volumes or when the…
Terminaling and Export (reported)
- DKL (DKL)
- FY2025 10-K: …the surrounding area. Revenue Streams and Customers We generate revenue in our wholesale marketing and terminalling segment by (i) providing marketing services for the refined products output of the Tyler Refinery, (ii) engaging in wholesale activity at our Abilene and San Angelo, Texas terminals, as well as at…
- FY2025 10-K: …and provides terminalling services at our refined products terminals to independent third parties and Delek Holdings. • The storage and transportation segment provides crude oil, intermediate and refined products transportation and storage services to Delek Holdings' refining operations and independent third parties.…
- GEL (GENESIS ENERGY LP)
- FY2025 10-K: …crude oil and refined products on behalf of producers, refiners and other customers. This segment includes crude oil and refined products pipelines, terminals, rail unloading facilities, and refinery processing locations operating primarily within the U.S. Gulf Coast market. In addition, we utilize our trucking fleet…
- FY2025 10-K: …that their production can access the markets. Usually, our offshore crude oil pipeline customers enter into buy-sell or other transportation arrangements, pursuant to which the pipeline acquires possession (and, sometimes, title) from its customer of the relevant production at a specified location (often a producer's…
- PAA (PLAINS ALL AMERICAN PIPELINE LP)
- FY2025 10-K: …Cushing terminal and terminate at refineries in Coffeyville, Kansas and Tulsa, Oklahoma, respectively. Our partner in the Cushing Connect pipeline is the refiner customer at the terminus of the pipeline. Terminals . We are a large provider of crude oil terminalling services in Cushing, Oklahoma, which is one of the…
- FY2025 10-K: …entities and intangible assets and (vi) inventory valuations. Although we believe these estimates are reasonable, actual results could differ from these estimates. Purchases and Related Costs Purchases and related costs include (i) the weighted average cost of crude oil and NGL sold to customers, (ii) fees incurred…
- PAGP (PLAINS GP HOLDINGS LP)
- FY2025 10-K: …and terminals at the Midland, Texas hub. South Texas/Eagle Ford Our South Texas/Eagle Ford assets provide customers with Western Eagle Ford and Permian supply access with connectivity to export and refining demand at Corpus Christi and Houston. Gathering Pipelines. We own and operate various gathering systems in the…
- FY2025 10-K: …235,000 barrel per day capacity pipeline that extends from our Cushing Terminal in Oklahoma to Longview, Texas, where it connects with various pipelines. We serve as operator of the Red River Pipeline. The Red River joint venture owns an approximate 69% UJI in the pipeline segment from Cushing to Hewitt, Oklahoma and…
- MPLX (MPLX LP)
- FY2025 10-K: …bring advantaged North American crude oil from the upper Great Plains, Louisiana, Texas, Canada and West Coast to numerous refineries throughout the United States. Terminals provide for the receipt, storage, blending, additization, handling and redelivery of refined products via pipeline, rail, marine and truck…
- FY2025 10-K: …agreement vary. Transportation, Terminal and Storage Services Agreements with Third Parties We have multiple transportation and terminal services agreements with third parties under which we provide use of pipelines and tank storage, and provide services, facilities and other infrastructure related to the receipt,…
- EPD (ENTERPRISE PRODUCTS PARTNERS L.P.)
- FY2025 10-K: …based on either tariffs regulated by governmental agencies or contractual arrangements. Under certain agreements, customers are required to ship a minimum volume over an agreed-upon period, with make-up rights. Revenue attributable to such agreements is initially deferred and subsequently recognized at the earlier of…
- FY2025 10-K: …sales margins. Ethylene exports and related activities Gross operating margin from ethylene exports and related activities for the year ended December 31, 2025 decreased a net $20 million when compared to the year ended December 31, 2024 primarily due to lower deficiency fee revenues from our ethylene pipelines and…
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
HESM FY2025 10-K · HESM Q1 2026 results, May 2026 · HESM Q1 2026 earnings call, May 2026 · HESM Q1 2026 earnings release, May 2026