Hess Midstream's Investment Potential Post-Selloff: Valuation Attractiveness vs. Operational Risks

In the wake of a recent selloff, Hess Midstream (HESM) has emerged as a compelling case study in the midstream energy sector, balancing robust valuation metrics with operational risks tied to the volatile energy landscape. For investors seeking undervalued infrastructure plays, HESM's financial performance and strategic adjustments offer both promise and caution.

Valuation Attractiveness: A Discounted Infrastructure Play

Hess Midstream's 2025 financial results underscore its appeal as a value-oriented investment. The company reported a 14% year-over-year increase in Adjusted EBITDA to $316 million in Q2 2025, with full-year guidance of $1.235–$1.285 billion, according to the Q2 2025 earnings transcript. This growth, coupled with a trailing P/E ratio of 12.40 and a forward P/E of 11.32, is reflected in HESM's HESM statistics, and positions HESM below the midstream industry P/E average of 14.95. Its EV/EBITDA ratio of 9.09 also aligns closely with the sector's 8.97x average reported in those HESM statistics, while its EV/FCF ratio of 16.07, though higher than peers like DT Midstream (16.9x), reflects a reasonable premium for its stable cash flow generation.

The company's financial discipline further enhances its valuation case. With a leverage ratio of 3.1x EBITDA (per the HESM statistics) and a 7.28% dividend yield noted in the transcript, HESM offers a compelling risk-rebalance for income-focused investors. S&P's recent upgrade of its debt to BBB- investment grade, also discussed in the transcript, is expected to lower borrowing costs, amplifying free cash flow (FCF) potential.

Operational Risks: Chevron's Bakken Exit and Commodity Volatility

Despite its valuation strengths, Hess Midstream faces headwinds from its deep ties to Chevron's operations in the Bakken region. Chevron's decision to reduce its Bakken rig count from four to three in Q4 2025, as reported in the Yahoo Finance article titled "Hess Midstream Cuts Outlook", has forced HESM to revise its outlook, projecting oil throughput volumes to plateau in 2026. While gas gathering volumes remain resilient-driven by long-term contracts and third-party throughput-the company's capital expenditures have been curtailed, with the Capa gas plant project suspended to cut 2026–2027 spending, according to that article.

This dependency on Chevron introduces asymmetry. If Chevron accelerates its exit from the Bakken, Hess Midstream's Adjusted EBITDA could stagnate post-2025, limiting growth avenues. However, the company's fee-based revenue model-about 80% gross margins reported in Q1 2025 in the earnings transcript-and diversified throughput (e.g., 11% growth in water gathering volumes noted in the same transcript) provide some insulation against commodity price swings.

Industry Context: Midstream's Resilience in a Shifting Energy Mix

The broader midstream sector remains attractive, with MLPs trading at 8.8x 2025 EBITDA-below their 10-year average of 10.4x, a point highlighted in the company transcript-and FCF yields in the mid-single digits, according to an ETFdb analysis. HESM's EV/FCF of 16.07 suggests it trades at a slight premium to peers like Energy Transfer and Western Midstream, but its low leverage and strong balance sheet justify this gap per the ETFdb analysis and the HESM statistics.

Conclusion: A Calculated Bet on Stability

Hess Midstream's post-selloff valuation offers a compelling entry point for investors prioritizing stable cash flows and defensive characteristics. However, its long-term growth hinges on mitigating Chevron's exit risk and capitalizing on gas infrastructure demand. For those willing to accept moderate operational uncertainty, HESM's combination of attractive multiples, robust FCF, and strategic flexibility makes it a noteworthy addition to a diversified energy portfolio.