Stifel: Antero Midstream Pullback, Valuation Of Consolidated Entity Create Compelling Entry Point

Shares of Antero Midstream Partners LP AM, which owns, operates and develops midstream energy assets, have pulled back adequately enough to render the valuation attractive, according to Stifel.

The Analyst

Stifel's Timothy Howard upgraded Antero from Hold to Buy and assigned a $35 price target. 

The Thesis

Antero Midstream Partners units have lost about 10 percent since Stifel's Aug. 2 downgrade versus a less-than-1-percent gain in the Alerian Index, Howard said in the upgrade note. (See the analyst's track record here.) 

The consolidated Antero Midstream — assuming general partner Antero Midstream GP LP AMGP buys it at no premium to Monday's close — is trading at 11.6 times Stifel's 2019 adjusted EBITDA estimate, the analyst said. 

This compares to a 12.6 times multiple at the time of Stifel's downgrade, Howard said.

"While uncertainty remains around Antero's strategic review outcome, we believe the pullback in AM and the consolidated entity's valuation creates a more compelling entry point," the analyst said. "Since Antero Resources Corp AR activism drove this strategic review due to conflicts of interest, we believe investors are well served by aligning themselves with AR shareholders through AM units."

Citing an updated model for 10-Q segment level data, Stifel moderated its 2018 estimates for Antero Midstream Partners and said it expects adjusted EBITDA of $707 million and discounted cash flow of $577 million compared to its previous estimates of $710 million and $582 million, respectively. The firm slightly increased 2019 estimates.

Price Action

Antero Midstream Partners units have gained 8.7 percent year-to-date.

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