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Antero Midstream (AM) Declines 12.3%: Where's it Headed?

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Antero Midstream Corporation (AM - Free Report) has lost 12.3% since the present form of the company came into existence. The structural simplification deal between Antero Midstream GP LP and Antero Midstream Partners LP was concluded on Mar 12, 2019, leading to the creation of Antero Midstream Corporation.

The pricing chart given below shows that Antero Midstream has underperformed the Zacks Oil and Gas - Production and Pipelines industry, which has lost 1.4% since Mar 12. The Oil-Energy Sector declined 3.5% during this period.

Let’s see which way the company is headed for the future.

Estimate Revisions

The Zacks Consensus Estimate for 2019 earnings per share has been revised downward to 85 cents from 98 cents over the past 60 days, with five estimates going downward and no upward estimate revision. Similarly, for 2020, four estimates have moved lower in the past two months versus none higher. The consensus estimate has declined from $1.21 per share 60 days ago to $1.08 today, reflecting a 10.7% decrease.

Factors Deterring the Stock

Antero Midstream is a provider of integrated and customized midstream services for natural gas producers. Now let’s consider the present economic environment with respect to the energy market. Global economic slowdown is expected to hurt clean energy demand. The price of natural gas has declined significantly over the past few months. Moreover, per U.S. Energy Information Administration, Henry Hub natural gas spot price is expected to be $2.77/MMBtu in 2019, indicating a 13.7% decrease from 2018 levels. Thus, weak demand and low commodity price are likely to hurt the production of natural gas. Lower production volumes could dent demand for midstream infrastructures, thereby hurting Antero Midstream.

The company primarily provides services to Antero Resources. Thus, Antero Midstream is losing the opportunity to earn more fee-based revenues by providing midstream services to other drillers in the prolific Marcellus and Utica Shale plays, wherein demand for transportation and storage assets is on the rise.

Decrease in completion activities in the company’s Marcellus and Utica fresh water delivery systems is a concern. In fact, Antero Midstream’s first-quarter 2019 results were affected by lower fresh water delivery volumes, which came in at 13,732 thousand barrels, down 31% from the prior-year level. If the situation persists, the company’s future profits will be affected.

As of Mar 31, 2019, Antero Midstream had only $2 million in cash and cash equivalents, while long-term debt was $2,390 million, reflecting weakness in balance sheet. This will likely constrain the company’s financial flexibility.

Last Words

Given the headwinds mentioned above, Antero Midstream seems like a risky bet that ordinary investors should avoid, as the company’s prospects appear bleak. As such, it currently has a Zacks Rank #5 (Strong Sell).

Key Picks

Some better-ranked players in the energy space are Plains Group Holdings, L.P. (PAGP - Free Report) , Holly Energy Partners, L.P. (HEP - Free Report) and Kinder Morgan, Inc. (KMI - Free Report) . While Plains Group is carrying a Zacks Rank #1 (Strong Buy), Holly Energy and Kinder Morgan have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

Plains Group’s sales growth is projected at 26.1% through second-quarter 2019.

Holly Energy’s 2019 earnings per share are estimated to rise 8.8% year over year.

Kinder Morgan’s 2019 earnings per share are estimated to increase 11.2% year over year. 

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