At the end of April, natural gas prices at Henry Hub reversed a three-month dip and started heading up again. As a result, natural gas futures prices are now back at the same levels seen at the beginning of this year. The shift in price has triggered a shift in stance, as well. The prospect of stronger pricing and profits, amid a surge in demand, has attracted a round of investor interest in energy stocks.
Covering the energy sector for Wells Fargo, 5-star analyst Michael Blum looks at multiple reasons for taking a bullish view of the energy industry – and he comes down to a simple conclusion: “We see continued multiple expansion for natural gas midstream stocks driven by growing gas demand supported by AI, re-shoring, LNG, etc.“
Blum elaborates further, emphasizing, “Investors typically view midstream capex negatively after having lived through a period of disappointing returns. However, investor psychology on capex could change (at least for natural gas names). As ROIC increases and investors become more comfortable with the visibility of future returns (e.g. tied to data center demand), we believe growth (and capex) could be viewed favorably again. Higher growth rates typically tend to support higher EV/EBITDA multiples.”
Against this backdrop, the Wells Fargo analysts, Blum and his colleagues, are telling investors to pull the trigger on two natural gas midstream stocks in particular. We ran these tickers through the TipRanks database to see what other Street experts make of their prospects.
The Williams Companies (WMB)
We’ll start with Williams Companies, a $50 billion name in the natural gas midstream business. The company got started back in 1908, building pipelines for the expanding petroleum industry. Today, Williams owns and operates a continent-ranging network of natural gas assets, including gathering and storage facilities, pipelines, and processing plants.
This network is centered on the Gulf Coast of Texas-Louisiana-Mississippi, and extends into the Gulf and east to Florida. To the northeast, the company’s network reaches out to the…
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