Antero Midstream: 7% Yield + Buybacks, I'm Making The Stock My Largest High-Yield Investment

Core Viewpoint - Antero Midstream is positioned as a high-yield investment opportunity with a current yield of 7.3%, supported by stable long-term contracts and a strong partnership with Antero Resources, indicating potential for future dividend growth and robust financial performance [1][26]. Financial Performance - In 2023, Antero Midstream achieved a record $981 million in EBITDA and an 18% return on invested capital, demonstrating operational expertise and sustained value creation for shareholders [7]. - The fourth quarter of 2023 saw Antero Midstream report $254 million in EBITDA, a 10% increase year-over-year, and generated $156 million in free cash flow before dividends [9][12]. - The company anticipates $1.1 billion in EBITDA for 2024, reflecting solid performance driven by a maintenance capital program at Antero Resources [12][20]. Strategic Positioning - Antero Midstream benefits from a close partnership with Antero Resources, which holds a 29% ownership interest in the company, allowing for optimized operations and capital allocation strategies [7][26]. - The company owns over 400 miles of low-pressure pipelines and 230 miles of high-pressure pipelines, supporting Antero Resources' operations and ensuring minimal competition [7][16]. Future Growth Prospects - Antero Midstream plans to invest between $150 and $170 million in capital expenditures for 2024, focusing on maximizing value from its core assets in the Marcellus liquids-rich midstream corridor [12][20]. - The company expects to generate between $670 and $710 million in free cash flow in 2024, with a dividend coverage ratio of 159%, indicating strong financial health [18][19]. Valuation - Antero Midstream is trading at a blended P/OCF ratio of 7.6x, below its normalized long-term multiple of 10.4x, suggesting potential for significant price appreciation [25]. - Analysts project that the company could reach a fair value of over $18 per share, representing a 45% upside from its current price [25]. Dividend and Shareholder Returns - The company plans to maintain a stable dividend of $0.90 per share in 2024, with excess cash flow directed towards debt reduction and a $500 million share repurchase program [18][19]. - This buyback program could represent 8.4% of Antero Midstream's market cap, enhancing shareholder returns [18].