"Although this backdrop results in us taking a bullish view on AMID long term, our attraction to the company increases when we consider valuation. Currently, the stock is undervalued by over 30.0 percent according to our 10-year DDM and EV/EBITDA valuation analysis — both metrics derive an implied value of $16," analyst Richard Verdi wrote in a note.
As such, the brokerage now has a Buy rating on the stock. Previously, it rated the stock Neutral.
Beyond The Upgrade
Verdi said the company's assets are diversified and strategically positioned, benefiting financial health. American Midstream holds assets strategically located in five different southern states and North Dakota.
"Considering these assets are permitting AMID to see strong financial growth as adj. EBITDA is estimated to increase at a 45.0 percent five year CAGR through 2016," Verdi highlighted.
Another aspect making the story so attractive is the focus on smaller assets typically overlooked by large competitors.
"Accordingly, due to the smaller-size of AMID, as this process adds up over time, we believe it could have a large positive impact on the company while paving the way to other potential growth opportunities," the analyst continued.
In addition, the analyst said American Midstream's organic growth and expansion strategy should position the company for solid advancement of cash flow generation over time.
Further, Verdi noted that lack of sponsorship from Wall Street creates a solid investment opportunity, as the consensus rating and price target stand at Neutral and $12, respectively, suggesting the stock is being overlooked in the market.
"[W]e see this creating a buying opportunity for investors, because we believe as the aforementioned materializes, along with management's continued focus on its organic and inorganic growth strategy, the company should deliver profitability expansion that could drive estimates, price targets, and the stock price higher," Verdi added.
Shares of American Midstream were recently seen trading at $12.14, up 1.17 percent on the day.
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