Zacks Investment Research initiated coverage of Summit Midstream Corporation (SMC Quick QuoteSMC - Free Report) with a “Neutral” rating, citing a balanced risk-reward profile supported by financial restructuring, improved liquidity, and growing scale, offset by customer concentration, execution risks, and lingering leverage.

Following a transformative 2024, SMC undertook a $700-million asset divestiture and a $575-million refinancing, cutting its leverage ratio from 5.4X to 3.9X. These moves, combined with more than $100 million in projected 2025 free cash flow, position the company to achieve its 3.5X target and unlock strategic flexibility. This financial pivot comes when midstream companies face heightened scrutiny over debt levels and capital efficiency.

A key structural shift came with SMC’s conversion to a C-Corp in August 2024, which opened the door to a broader institutional investor base and contributed to a more than 75% rally in its stock in the year. This reclassification also boosted share liquidity and reduced prior tax complexities, making the stock more attractive to generalist funds and long-only strategies.

SMC operates in critical U.S. shale basins and maintains long-term, fee-based contracts and extensive areas of mutual interest through 2039. These arrangements reduce earnings volatility and offer downside protection amid shifting commodity markets. Notably, the Double E Pipeline, of which SMC owns a 70% stake, is a standout asset, backed by firm contracts with major shippers such as ExxonMobil and ConocoPhillips. Throughput surged 60% year over year in fourth-quarter 2024, affirming the pipeline’s importance as LNG export demand rises.

The research report highlights several key factors that can drive SMC’s growth. On the expansion front, SMC added valuable scale through two key acquisitions in 2024. Its $425-million purchase of Tall Oak Midstream extended its reach in the Arkoma Basin, while the Moonrise Midstream deal expanded capacity in the DJ Basin. Both transactions were structured to avoid overburdening the balance sheet, relying on internally generated cash and equity rather than additional debt.

However, potential investors should consider certain challenges outlined in the report. SMC’s earnings guidance depends heavily on the timely connection of more than 100 drilled but uncompleted wells. Any delays or cost overruns can derail both earnings momentum and leverage reduction goals. Additionally, near-term infrastructure constraints in the DJ Basin can cap upside, while recent acquisitions pose integration challenges that can weigh on margins and free cash flow if not managed efficiently.

Valuation-wise, SMC trades at a premium to its midstream peers on a trailing EV/Sales basis, yet remains below its five-year median. The stock has lagged the Zacks sub-industry over the past six months but has been within striking distance of the broader sector’s performance.

You are encouraged to view the full Zacks research report for a comprehensive analysis of SMC's financial health, growth initiatives and market positioning. This detailed report explores the company's operational strategies and financial performance, highlighting risks and opportunities that may impact its direction.

Read the full Research Report on Summit Midstream here>>>

Note: Our initiation of the coverage on SMC, which has a modest market capitalization of $553.4 million, aims to equip investors with the information needed to make decisions in this promising but inherently risky market segment.