Hess Midstream LP (HESM): Strategic Resilience and Undervalued Potential in a Shifting Midstream Landscape

Hess Midstream LP (HESM) has recalibrated its 2025 financial and operational guidance amid evolving market conditions, offering a compelling case for investors seeking undervalued midstream exposure. The company's updated outlook, combined with favorable sector dynamics and regulatory tailwinds, positions HESM as a strategic contender in a sector poised for long-term growth.

Operational and Financial Revisions: Navigating Near-Term Challenges

HESM revised its 2025 gas gathering and processing volumes downward to 455–465 MMcf/day and 440–450 MMcf/day, respectively, citing adverse weather and reduced third-party volumes in Q4 2025 Hess Midstream LP Announces Updated Guidance^[1]. This adjustment has pushed full-year net income and Adjusted EBITDA to the lower end of prior guidance, now projected at $715–$765 million and $1,235–$1,285 million, respectively Hess Midstream LP Announces Updated Guidance^[1]. While these revisions reflect near-term headwinds, the company's 2027 outlook remains optimistic, with Adjusted EBITDA growth anticipated from inflation-linked contracts and higher gas throughput volumes Hess Midstream LP Announces Updated Guidance^[1].

Capital spending is set to decline sharply in 2026 and 2027, as the Capa gas plant project—initially expected to come online in 2027—has been suspended due to shifting priorities Hess Midstream LP Announces Updated Guidance^[1]. This pivot to disciplined capital allocation aligns with HESM's long-term leverage target of 3x Adjusted EBITDA, with leverage expected to fall below 2.5x by 2026 Hess Midstream LP Announces Updated Guidance^[1]. The company's focus on Adjusted Free Cash Flow growth supports its commitment to a 5% annual distribution increase through 2027, fully funded by operational cash flows Hess Midstream LP Announces Updated Guidance^[1].

Sector Tailwinds: Regulatory and Market Dynamics

The midstream sector is navigating a transformative phase, driven by regulatory reforms under the Trump administration. Executive orders prioritizing expedited permitting and reduced NEPA-related delays are expected to lower compliance costs and accelerate project timelines for energy infrastructure Energy-Focused Executive Orders: Impact on Upstream and Midstream Oil & Gas^[2]. These changes, coupled with the Supreme Court's Loper Bright Enterprises v. Raimondo decision, which curtails agency overreach, create a more predictable regulatory environment for midstream operators Energy-Focused Executive Orders: Impact on Upstream and Midstream Oil & Gas^[2].

Simultaneously, natural gas demand is surging due to AI-driven electricity consumption and LNG export growth. The U.S. midstream sector's transportation segment is expanding, with projects like the Dakota Access Pipeline (DAPL) and Kern River's Delta Lateral enhancing capacity US Oil and Gas Midstream Market Analysis^[3]. HESM's gas gathering and processing infrastructure is well-positioned to benefit from these trends, particularly as its 2027 growth projections hinge on throughput expansion and inflation-linked contracts Hess Midstream LP Announces Updated Guidance^[1].

Valuation Attractiveness: A Discounted Opportunity

HESM's current valuation appears compelling relative to both peers and intrinsic estimates. The stock trades at a 45.4% discount to its estimated fair value of $64, with a 12-month price target of $43.50 implying 19.7% upside Hess Midstream (NYSE:HESM) Stock Valuation, Peer Comparison^[4]. Its Price-to-Earnings (PE) ratio of 15.7x is below the midstream peer average of 31.2x but above the U.S. oil and gas industry average of 13.4x Hess Midstream (NYSE:HESM) Stock Valuation, Peer Comparison^[4]. Analysts project a 13.77% upside to $46.20, with a “moderate buy” consensus rating Hess Midstream (NYSE:HESM) Stock Valuation, Peer Comparison^[4].

The broader midstream sector remains attractively priced, with MLPs trading at an EV/EBITDA of 8.8x (vs. a 10-year average of 10.4x) and C-Corps at 11x What’s Driving Midstream Company Performance? | Hennessy …^[5]. HESM's strong balance sheet—leverage is expected to fall below 2.5x by 2026—further enhances its appeal, as distribution coverage ratios remain robust at 1.8–1.9x What’s Driving Midstream Company Performance? | Hennessy …^[5].

Strategic Positioning: Discipline and Resilience

HESM's strategic focus on capital efficiency and distribution growth distinguishes it in a competitive landscape. While peers like American Midstream Partners LP and Shell Midstream Partners LP face fragmented market dynamics, HESM's disciplined approach to project prioritization—suspended Capa plant and redirected capital to maintenance and incremental expansions—ensures alignment with long-term value creation US Oil and Gas Midstream Market Analysis^[3].

The company's 5% annual distribution target, fully funded by Adjusted Free Cash Flow, offers a stable income stream for investors. This contrasts with the sector's historical volatility, where overleveraged operators struggled to maintain payouts. HESM's leverage reduction and inflation-linked contracts provide a buffer against macroeconomic uncertainties, reinforcing its resilience.

Conclusion: A Buy for Long-Term Investors

Hess Midstream LP's updated guidance reflects short-term challenges but underscores its long-term strategic clarity. With regulatory tailwinds, a disciplined capital structure, and a compelling valuation, HESM presents an attractive opportunity for investors seeking exposure to a sector poised for growth. The company's ability to navigate near-term headwinds while maintaining distribution growth and leverage discipline positions it as a standout in the midstream space.