Hess Midstream LP: A Strategic Entry Point Ahead of Q2 Earnings and Growth Catalysts

Hess Midstream LP (NYSE: HESM) stands at a pivotal moment as it prepares to release its Q2 2025 earnings on July 23, 2025. Investors are watching closely for signs of operational resilience, progress on its $53 billion merger with Chevron, and updates on its accretive capital allocation strategies. With a recent repurchase program boosting distributable cash flow per unit and a track record of steady distribution growth, Hess Midstream presents an intriguing opportunity for income-focused investors. Here's why now could be the time to consider a position.

Strategic Repurchases: Fueling Shareholder Value

The company's May 2025 announcement of a $200 million accretive repurchase program marked a bold move to enhance long-term value. By purchasing $190 million of Class B units from Hess Corporation and Global Infrastructure Partners (GIP), Hess Midstream reduced ownership stakes to 37.8% for Hess and 7.1% for GIP, while increasing public ownership to 55.1%. This shift not only strengthens the liquidity of publicly traded units but also positions the company to support its 5% annual distribution growth target through 2027.

The program's immediate impact is clear: the first tranche of a $10 million accelerated share repurchase (ASR) delivered 189,804 Class A shares, directly boosting distributable cash flow per share. This strategy aligns with Hess Midstream's focus on capital discipline, as evidenced by its 3.1x leverage ratio—one of the lowest among midstream peers—allowing flexibility to navigate commodity price swings and operational challenges.

Distribution Growth: A Reliable Income Stream

Hess Midstream's Q1 2025 distribution of $0.7098 per Class A share marked an 1.23% increase from the prior quarter, maintaining its trajectory toward the 5% annual growth goal. This consistency underscores the company's contractual fee-based cash flows, which are insulated from commodity price volatility. With a $1.25 billion financial flexibility buffer through 2027, Hess Midstream has the capacity to continue rewarding shareholders through distributions and further repurchases.

Investors should note that the Q2 earnings release will likely provide updated guidance on capital expenditures and free cash flow, which currently target $735–$785 million for 2025. A beat on these metrics could further bolster confidence in the company's ability to sustain distributions amid evolving market conditions.

Growth Catalysts: Merger Progress and Operational Momentum

The pending merger with Chevron remains a key catalyst. While regulatory approvals and the resolution of the arbitration over Hess's 30% stake in the Stabroek block in Guyana hang in the balance, a favorable outcome by mid-2025 could unlock significant value. Analysts project a potential valuation range of $20–$32 per share, depending on the merger's progress.

Meanwhile, Hess Midstream's core operations continue to expand. Throughput volumes for gas processing, oil terminaling, and water gathering systems grew in Q1, demonstrating operational resilience despite winter weather disruptions. The company's full-year 2025 guidance—net income of $715–$765 million and adjusted EBITDA of $1,235–$1,285 million—remains intact, suggesting confidence in its ability to navigate cyclical headwinds.

Risks to Consider

• Arbitration Outcomes: The Stabroek block dispute with Exxon Mobil and CNOOC could delay the Chevron merger, impacting Hess Midstream's valuation.
• Commodity Prices: Crude oil prices below $75–80 per barrel could pressure margins, though Hess Midstream's fee-based model provides some insulation.
• Regulatory Hurdles: Antitrust scrutiny of the Chevron merger remains a wildcard, with potential delays or structural adjustments.

Investment Thesis: Opportunistic Entry Before Earnings

With shares trading at ~$25, Hess Midstream offers a compelling entry point ahead of its Q2 earnings. The consensus EPS estimate of $0.66 for Q2 2025, compared to $0.59 in the prior-year quarter, suggests upward momentum. A beat on this figure could catalyze a rally toward the $30–$32 valuation range tied to a successful merger.

Historically, earnings releases have provided a positive catalyst. Over the past three years, earnings announcements resulted in a 35.71% win rate within three days, rising to 78.57% at ten days and 71.43% at thirty days. The strongest post-earnings gain reached 1.39% on day 52, reflecting consistent momentum in the medium term. This aligns with Hess Midstream's track record of using earnings reports to communicate growth drivers like distribution hikes and merger progress.

For income investors, the current yield of ~6% on distributable cash flow, paired with the 5% annual distribution growth target, makes HESM a standout in the midstream sector. However, the stock's sensitivity to the Chevron merger's timeline demands a medium-term horizon.

Final Take

Hess Midstream LP's strategic repurchases, stable distribution growth, and robust balance sheet position it as a resilient income play. While risks remain tied to the Chevron merger and arbitration, the upcoming Q2 earnings release offers a critical inflection point. Investors seeking exposure to a midstream leader with a clear path to value creation should consider a gradual build into HESM ahead of July 23's report. A post-earnings breakout could signal the start of a multi-quarter rally, making this a timely opportunity to capitalize on both income and growth potential.