Antero Midstream Corporation (AM) in Denver, Colo., was formed by Antero Resources Corporation (AR) in 2012 to own, operate, and develop midstream energy infrastructure to service Antero Resources’ increasing production and completion activity as well as that of neighboring operations. The company focuses on developing midstream infrastructure in two of the premier North American Shale plays–the Marcellus and Utica Shales.

AM shares have gained 29.4% in price over the past year and 9.4% over the past month to close yesterday’s trading session at $11.26. The stock has gained 16.3% in price year-to-date. However, Wall Street analysts see an 8.3% potential downside in the stock. In addition, J.P. Morgan analyst Jeremy Tonet maintained a Sell rating on AM as of March 24.

Furthermore, AM’s short percent of float has risen 12.9% since its last report. Earlier this month, it was reported that it had 10.21 million shares sold short. The increasing short interest indicates investors’ bearish sentiments around the stock.

Here is what could shape AM’s performance in the near term:

Mixed Valuation

In terms of forward Price/Sales, AM is currently trading at 5.84x, which is 258.4% higher than the 1.63x industry average. Also, its 9.22 forward EV/Sales ratio is 322.3% higher than the 2.18 industry average.

However, AM’s trailing-12-month non-GAAP P/E is 10.6% lower than the 14.67x industry average, and its trailing-12-month EV/EBIT is 5.7% lower than the 16.00x industry average.

Mixed Last Quarter Performance

For its fiscal fourth quarter, ended Dec. 31, 2021, AM’s total revenues increased 6.2% year-over-year to $216.49 million. However, AM’s adjusted net income declined 2.9% from its year-ago value to $95.10 million, and its adjusted net income per share was $0.20 per share, a 5% decrease compared to the prior-year quarter. Its free cash flow before dividends decreased 34.6% year-over-year to $88.11 million, driven primarily by higher capital expenditures during the quarter, while its free cash flow after dividends came in at a negative $19.37 million.

AM’s low-pressure gathering volumes for the quarter averaged 2,961 MMcf/d, reflecting a 3% decrease versus the prior-year quarter, while its high-pressure gathering volumes totaled 2,915 MMcf/d, down from the year-ago period’s 3,017 MMcf/d. And its freshwater delivery volumes stood at 80 MBbl/d, up 86% from the prior-year level.

Impressive Profit Margins

AM’s 83.78% gross profit margin is 114.7% higher than the 39.02% industry average. Also, its 76.78% EBITDA margin is 215.2% higher than the 24.36% industry average.

Furthermore, AM’s 14.07%, 5.98%, and 6.46% respective ROE, ROA, and ROTC compare with the 8.84%, 2.94%, and 4.65% industry averages.

POWR Ratings Reflect Uncertainty

AM has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Value, which is consistent with its mixed valuation.

AM has a B grade for Quality, which is consistent with its higher-than-industry profit margins.

Among the 35 stocks in the MLPs – Oil & Gas industry, AM is ranked #30.

Beyond what I have stated above, one can also view AM’s grades for Growth, Sentiment, Momentum, and Stability here.

View the top-rated stocks in the MLPs – Oil & Gas industry here.

Bottom Line

AM shares have been climbing in price amid the rising energy prices. However, the company’s operational performance in its last reported quarter has not been impressive. Furthermore, analysts expect the company’s EPS to decline 5.3% in the quarter ended March 31, 2022, 11.7% in the current quarter, and 3% in its fiscal year ending Dec. 31, 2022. Also, considering the Street’s expectation of a downside, I think it could be wise to wait for a better entry point in the stock.

How Does Antero Midstream Corporation (AM) Stack Up Against its Peers?

While AM has an overall POWR Rating of C, one might want to consider looking at its industry peers, Star Group L.P. (SGU) and Martin Midstream Partners L.P. (MMLP), which have an A (Strong Buy) rating.

AM shares fell $0.01 (-0.09%) in premarket trading Tuesday. Year-to-date, AM has gained 19.01%, versus a -7.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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