Antero Midstream: Shrugs Off Volume Worries

Company Overview - Antero Midstream (AM) is a midstream company that owns a system of low-pressure and high-pressure gathering pipelines primarily serving Antero Resources (AR) [3] - AM also has a 50% stake in a joint venture with MarkWest for processing and fractionation assets in the Marcellus and Utica regions, along with a freshwater delivery business [3] - The company's contracts are fee-based or service-based with inflation escalators, making it largely dependent on natural gas volumes from AR, which owns 29% of AM [3] Q4 Results - AM's Q4 results are closely tied to AR's drilling activity, with AR's Q4 production rising 6% year-over-year [4] - AM's low-pressure gathering volumes increased by 10% to 3,377 MMcf/d, while high-pressure gathering rose 10% to 3,047 MMcf/d [4][6] - The acquisition of Crestwood in Q4 2022 contributed to the increase in low-pressure volumes [4] Financial Performance - AM reported a 10% increase in adjusted EBITDA to $254 million and free cash flow surged to $156.4 million from $115.7 million a year ago [6] - The company ended the quarter with leverage of 3.3x, down from 3.4x in the previous quarter, and aims to reach 3.0x leverage by the end of 2024 [6] - AM forecasts full-year adjusted EBITDA of $1.02-1.06 billion, a 5% increase at the midpoint, with CapEx projected to decrease by 14% to $150-170 million [6] Valuation - AM trades at 8.1x the 2024 EBITDA consensus of $1.06 billion and has a free cash flow yield of about 12% based on projections [7] - The stock has a dividend yield of approximately 7.3% and is considered to have one of the cheaper valuations in the sector [7] - Valuation estimates suggest that an 8-9x multiple on 2025 EBITDA could value the stock between $13.50-15.50 after accounting for debt reductions [7] Future Outlook - AM is expected to benefit from rebate roll-offs and inflation escalators in contracts in 2024, with free cash flow expected to increase due to lower interest expenses and reduced CapEx [6][8] - The company plans to maintain its annualized dividend at 90 cents and has authorized a $500 million share repurchase plan [6] - While a distribution increase is not anticipated in the near term, there is potential for such an increase in 2025 after reaching the leverage target [8]