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Here's Why Hold Strategy is Apt for Antero Midstream (AM) Stock

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Antero Midstream Corporation (AM - Free Report) has witnessed upward earnings estimate revisions for 2023 in the past 30 days.

The company, currently carrying a Zacks Rank #3 (Hold), beat the Zacks Consensus Estimate for earnings thrice and met the same once in the trailing four quarters, delivering a surprise of 8.4% on average.

What's Favoring the Stock?

Antero Midstream generates stable fee-based revenues under long-term contracts for providing customized and integrated midstream services to leading natural gas producer, Antero Resources Corporation. AM is likely to continue to generate stable cash flow by providing midstream services to the upstream energy firm.

In 2022, Antero Resources added 80 premium drilling locations in the core of the Appalachia liquids area at an average cost of less than $1 million per location. This resulted in capital efficiencies for Antero Midstream and added to its multi-decade underlying inventory life.

Antero Midstream has an organic project backlog of $0.9-$1 billion. The company is well-positioned to generate significant cash flows from the midstream projects, with a declining leverage profile in 2023. For 2023, AM expects a net income of $355-$395 million, indicating an increase from the $326.2 million reported in 2022. 

The company disclosed a capital budget of $180-$200 million for 2023, indicating a decline from the previously mentioned $195-$215 million. This will help increase the company’s profitability. More than 90% of AM’s capital budget will be allocated toward the Marcellus Shale, while the remaining will be focused on the Utica Shale.

AM is focused on generating strong free cash flows and rewarding its shareholders. The midstream operator anticipates a free cash flow after dividends of $125-$155 million. In 2023, the company anticipates a return of capital program of 50% of its free cash flow.

As the scope of free cash flow generation looks promising, Antero Midstream is expecting ample room to reward shareholders with dividend hikes.


Antero Midstream’s debt to capitalization of 60.5% reflects significant exposure to the debt capital compared with composite stocks belonging to the industry. This can affect the company’s financial flexibility.

Key Picks

Some better-ranked players in the energy space are Murphy USA Inc. (MUSA - Free Report) , Sunoco LP (SUN - Free Report) and Dril-Quip, Inc. (DRQ - Free Report) . While Murphy USA and Sunoco sport a Zacks Rank #1 (Strong Buy), Dril-Quip carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA announced first-quarter 2023 earnings per share of $4.80, which beat the Zacks Consensus Estimate of $4.06. The outperformance can be attributed to higher volumes and retail fuel contribution.

MUSA is committed to returning excess cash to its shareholders through continued share buyback programs. As part of this initiative, the motor fuel retailer recently approved a repurchase authorization of up to $1.5 billion following the completion of the existing $1-billion mandate. The move underscores MUSA’s sound financial position and commitment to rewarding its shareholders.

Sunoco reported first-quarter 2023 earnings of $1.41 per unit, beating the Zacks Consensus Estimate of $1.21. Better-than-expected quarterly earnings were primarily driven by higher contributions from the Fuel Distribution and Marketing segment.

For 2023, SUN revised its adjusted EBITDA guidance upward to $865-$915 million from the previously mentioned $850-$900 million.

Dril-Quip reported a first-quarter 2023 adjusted loss of 1 cent per share, narrower than the Zacks Consensus Estimate of a loss of 2 cents. This was due to improved performances of key offshore markets and some reemerging areas.

For 2023, DRQ expects product booking growth of 10-20%. The company reported net bookings of $53.5 million for the first quarter. Backlog rose 6% year over year due to an increase in product bookings following improved market conditions.

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