This WES Stock Forecast article was written by Aiden Chalem – Financial Analyst at I Know First.

Highlights:

• Increased distribution resulted in an attractive yield of about 8.9%, appealing to income-focused investors. The company appears on track to achieve its leverage goal.
• In FY24Q1, WES reported EPS of $1.47, beating estimates by $0.68, with a 20.95% YoY revenue increase to $887.73 million.
• Investors are holding Western Midstream Partners due to strong financial performance and concerns over the stock’s high valuation.

WES Stock Forecast: Western Midstream Partners, is a U.S. midstream energy company specializing in the transportation and processing of natural gas, NGLs, crude oil, and produced water. Operating primarily in Texas, New Mexico, the Rocky Mountains, and Pennsylvania, WES benefits from strong market demand and favorable financial performance. Known for its high dividend yield, WES remains a compelling option for income-focused investors. This article will examine WES’s current market position and provide an outlook for the future of the stock.

WES has demonstrated impressive efficiency and above-average ROI, capturing investor interest with a notable 53.55% increase in stock price over the past year. With a remarkable start to FY24Q1, the stock now offers an attractive yield of 9.4%, reinforcing its appeal to income-focused investors. Currently trading at $40.96, WES has seen a daily range of $40.92 to $42.00, highlighting its strong market performance. This significant growth and high yield underscore WES’s promising outlook and robust market position. The attached figure highlights this upward trend, further emphasizing its investment potential.

Western Midstream Partners has shown impressive performance, highlighted by a strong start to the year. In FY24Q1, the company reported a record adjusted EBITDA of $609 million, marking a 22% increase from the previous year, and a nearly 60% surge in free cash flow to $225 million. This strong financial performance prompted the company to expect its full-year adjusted EBITDA to be at the high end of its guidance range of $2.2 billion to $2.4 billion. The robust results reflect the company’s efficient operations and favorable market conditions, driven by increased demand and throughput levels.

Additionally, Western Midstream significantly increased its quarterly distribution by 52%, from $0.575 per unit to $0.875. This increase resulted in an attractive yield of about 8.9%, appealing to income-focused investors. The company appears on track to achieve its leverage goal of 3 times net debt to EBITDA. This goal may allow for excess distributions above the current payout, enhancing shareholder value.

This financial strategy is likely to propel the stock higher and position it for continued outperformance. The company also saw record natural gas throughput and improved volumes in crude and NGLs. Successful sales of non-core assets bolstered its financial flexibility and debt reduction efforts. These factors collectively enhance WES’s market position and growth prospects, making it a strong investment.

Western Midstream Partners has consistently demonstrated strong performance in its earnings reports. In FY24Q1, WES reported an EPS of $1.47, significantly beating estimates by $0.68, with a year-over-year (YoY) revenue increase of 20.95% to $887.73 million. Despite a miss in FY23Q4 by $0.05, the company quickly rebounded with solid gains in FY23Q3, beating estimates by $0.07 and generating $776.01 million in revenue. This consistent ability to either meet or exceed EPS expectations highlights WES’s operational efficiency and market resilience.

Looking ahead, the year-over-year revenue trends indicate robust growth, particularly evident in the first quarter of 2024. The EPS change year-over-year chart shows a strong upward trajectory in 2024, with a notable drop for FY25Q1. This trend suggests a temporary adjustment period, but WES will likely leverage operational strengths and market opportunities to sustain growth. The overall trend line, despite the projected dip, points to a positive long-term outlook. This outlook is bolstered by strategic asset sales and effective capital management.

WES has outpaced its peers with a remarkable 53.55% price return over the past year. This performance is notably higher than Plains All American Pipeline (PAA) at 29.63%, Pembina Pipeline Corporation (PBA) at 22.73%, and Hess Midstream LP (HESM) at 26.63%. WES’s financial strength is evident from its strategic asset sales and debt reduction efforts, which have contributed to a high dividend yield of 8.9%. These actions underscore WES’s efficient operations and strategic management​.

With a market cap of $15.89 billion and an enterprise value of $23.12 billion, WES competes effectively in the sector despite having fewer employees (1,377) compared to PAA (4,200). The company’s ability to leverage its streamlined operations has allowed it to outperform larger peers. Strategic asset sales, which generated $790 million, and the reduction of $150 million in debt have further solidified its financial health, enhancing its market position and appeal to investors.

In conclusion, WES’s outstanding price return and financial performance place it well above average in its industry. Its strategic management and robust financial health suggest continued growth and value creation, making it a standout performer in the midstream energy sector​.

WES Stock Forecast: Company Outlook

Western Midstream Partners has been looked at by Wall Street analysts over the past three months, with a prevailing consensus to hold the stock. A recent bar chart illustrating analysts’ recommendations reveals that the majority favor a “Hold” position, indicated by the dominant yellow segments. Smaller portions of the chart show some analysts recommending “Buy” and “Strong Buy,” while very few suggest selling. This indicates a cautious yet stable outlook, with no significant shifts towards either buying or selling. The visual data underscores a general sentiment of maintaining the current investment without making drastic changes.

Investors are holding Western Midstream Partners due to strong financial performance and concerns over the stock’s high valuation. The company reported impressive first-quarter 2024 earnings, with net income of $559.5 million and adjusted EBITDA of $608.4 million. Despite this robust performance, the current stock price is seen as high, suggesting a potential 22.29% downside. This perceived overvaluation makes new purchases less attractive, leading analysts to recommend holding the stock. Broader market uncertainties and sector-specific risks also contribute to the cautious stance, favoring a hold strategy.

Analysts set an average price target of $38.13 for WES, indicating an 8.71% potential downside from its current trading price. Their forecasts range from a low of $32.00 to a high of $45.00, showing differing confidence levels in WES’s future performance. Factors influencing these varied price targets include WES’s robust financial performance, strong earnings, and revenue growth. These factors are balanced against concerns about market volatility and sector-specific risks. This range of forecasts reflects the complex nature of WES’s investment outlook.

Despite WES’s strong earnings, analysts are cautious due to the stock’s high valuation, which may limit near-term gains. The energy sector faces uncertainties, including fluctuating oil prices and regulatory challenges, impacting WES’s profitability and growth prospects. Analysts’ mixed forecasts, including buy and sell ratings, highlight uncertainty around the stock’s future performance. This uncertainty leads to an average target price indicating a potential decrease from current levels.

A comparable company analysis was made for Western Midstream Partners (WES) based on several midstream companies. By analyzing the implied value per share, which is $54.45, it can be inferred that WES is undervalued compared to its current market price of $41.77. This suggests a potential upside of about 30%, indicating that the stock could be a good investment opportunity. The implied value per share reflects the market’s confidence in the company’s financial stability and growth potential, making it an attractive option for investors looking for value in the midstream sector.

Comparing WES to its peers, it stands out in several valuation metrics. WES has an EV/Revenue ratio of 7.0x, which is below the high of 10.7x but above the median of 4.4x, indicating a relatively high enterprise value compared to its revenue. Its EV/EBITDA ratio of 7.9x and P/E ratio of 11.7x are also competitive, placing WES favorably among its peers, particularly against companies like Hess Midstream LP, which has a notably high P/E of 60.4x. Additionally, WES’s price-to-book ratio of 4.9x is higher than the average of 3.2x, suggesting that the market values its assets more highly. These comparisons highlight WES’s strong market position and potential for future growth relative to other companies in the industry.

WES Stock Forecast: Conclusion

Based on the comparable company analysis, Western Midstream Partners (WES) shows a bullish outlook with substantial potential upside. The implied value per share is $44.33, higher than the current market price of $41.77. WES’s strong financial metrics, including competitive EV/EBITDA and P/E ratios, indicate robust financial stability and growth potential. The company’s favorable valuation metrics and impressive financial results support its strong market position. WES offers a reliable investment with steady income and growth for long-term investors and opportunities for short-term gains. Overall, WES is a compelling investment for both long-term and short-term strategies.

It is worth paying attention that the stock-picking AI of I Know First has a strong long signal on the one-year market trend forecasts, supporting my position for the WES stock forecast. The light green for the short-term forecasts is weak bullish, while the green is a mild bullish signal for the one-year forecast.

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Please note-for trading decisions use the most recent forecast.