Intrinsic value of Hess Midstream Partners LP - HESM

Previous Close

$19.09

  Intrinsic Value

$139.56

stock screener

  Rating & Target

str. buy

+631%

Previous close

$19.09

 
Intrinsic value

$139.56

 
Up/down potential

+631%

 
Rating

str. buy

We calculate the intrinsic value of HESM stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 1.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.80
  12.92
  12.13
  11.42
  10.77
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
Revenue, $m
  753
  851
  954
  1,063
  1,177
  1,297
  1,423
  1,554
  1,690
  1,833
  1,980
  2,134
  2,294
  2,460
  2,632
  2,812
  2,998
  3,192
  3,394
  3,604
  3,823
  4,051
  4,288
  4,536
  4,795
  5,065
  5,347
  5,641
  5,949
  6,272
Variable operating expenses, $m
  74
  83
  93
  104
  115
  127
  139
  152
  166
  180
  194
  209
  225
  241
  258
  276
  294
  313
  333
  353
  375
  397
  420
  445
  470
  496
  524
  553
  583
  615
Fixed operating expenses, $m
  234
  239
  244
  250
  255
  261
  267
  273
  279
  285
  291
  297
  304
  311
  317
  324
  332
  339
  346
  354
  362
  370
  378
  386
  395
  403
  412
  421
  430
  440
Total operating expenses, $m
  308
  322
  337
  354
  370
  388
  406
  425
  445
  465
  485
  506
  529
  552
  575
  600
  626
  652
  679
  707
  737
  767
  798
  831
  865
  899
  936
  974
  1,013
  1,055
Operating income, $m
  445
  528
  616
  709
  807
  909
  1,017
  1,129
  1,246
  1,368
  1,495
  1,628
  1,765
  1,908
  2,057
  2,212
  2,373
  2,540
  2,715
  2,897
  3,086
  3,284
  3,490
  3,705
  3,930
  4,165
  4,411
  4,667
  4,936
  5,217
EBITDA, $m
  585
  686
  793
  906
  1,025
  1,150
  1,281
  1,417
  1,560
  1,708
  1,863
  2,024
  2,191
  2,365
  2,546
  2,734
  2,929
  3,133
  3,345
  3,566
  3,796
  4,036
  4,286
  4,547
  4,820
  5,105
  5,403
  5,714
  6,040
  6,381
Interest expense (income), $m
  0
  0
  7
  27
  49
  71
  95
  120
  146
  173
  201
  230
  261
  293
  326
  360
  396
  433
  471
  512
  553
  597
  642
  689
  738
  789
  843
  899
  957
  1,018
  1,082
Earnings before tax, $m
  445
  521
  589
  660
  735
  814
  897
  983
  1,073
  1,167
  1,265
  1,367
  1,472
  1,582
  1,697
  1,816
  1,940
  2,069
  2,203
  2,344
  2,490
  2,642
  2,801
  2,967
  3,141
  3,322
  3,512
  3,710
  3,918
  4,135
Tax expense, $m
  120
  141
  159
  178
  199
  220
  242
  266
  290
  315
  342
  369
  398
  427
  458
  490
  524
  559
  595
  633
  672
  713
  756
  801
  848
  897
  948
  1,002
  1,058
  1,117
Net income, $m
  325
  380
  430
  482
  537
  594
  655
  718
  784
  852
  923
  998
  1,075
  1,155
  1,239
  1,326
  1,416
  1,510
  1,609
  1,711
  1,817
  1,929
  2,045
  2,166
  2,293
  2,425
  2,564
  2,708
  2,860
  3,019

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  3,206
  3,620
  4,059
  4,522
  5,010
  5,520
  6,055
  6,612
  7,193
  7,798
  8,427
  9,081
  9,761
  10,467
  11,202
  11,965
  12,758
  13,583
  14,442
  15,335
  16,266
  17,236
  18,247
  19,302
  20,403
  21,552
  22,752
  24,006
  25,317
  26,687
Adjusted assets (=assets-cash), $m
  3,206
  3,620
  4,059
  4,522
  5,010
  5,520
  6,055
  6,612
  7,193
  7,798
  8,427
  9,081
  9,761
  10,467
  11,202
  11,965
  12,758
  13,583
  14,442
  15,335
  16,266
  17,236
  18,247
  19,302
  20,403
  21,552
  22,752
  24,006
  25,317
  26,687
Revenue / Adjusted assets
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
Average production assets, $m
  2,950
  3,331
  3,735
  4,162
  4,610
  5,080
  5,572
  6,085
  6,620
  7,176
  7,755
  8,357
  8,983
  9,633
  10,308
  11,011
  11,741
  12,500
  13,290
  14,113
  14,969
  15,862
  16,792
  17,763
  18,776
  19,833
  20,938
  22,092
  23,298
  24,559
Working capital, $m
  -41
  -47
  -52
  -58
  -65
  -71
  -78
  -85
  -93
  -101
  -109
  -117
  -126
  -135
  -145
  -155
  -165
  -176
  -187
  -198
  -210
  -223
  -236
  -249
  -264
  -279
  -294
  -310
  -327
  -345
Total debt, $m
  133
  506
  901
  1,318
  1,756
  2,216
  2,697
  3,198
  3,721
  4,266
  4,832
  5,421
  6,033
  6,668
  7,329
  8,016
  8,730
  9,472
  10,245
  11,049
  11,887
  12,760
  13,670
  14,619
  15,610
  16,644
  17,724
  18,853
  20,033
  21,266
Total liabilities, $m
  2,885
  3,258
  3,653
  4,070
  4,509
  4,968
  5,449
  5,951
  6,474
  7,018
  7,585
  8,173
  8,785
  9,421
  10,081
  10,768
  11,482
  12,225
  12,997
  13,802
  14,640
  15,513
  16,423
  17,372
  18,362
  19,396
  20,477
  21,605
  22,785
  24,019
Total equity, $m
  321
  362
  406
  452
  501
  552
  605
  661
  719
  780
  843
  908
  976
  1,047
  1,120
  1,196
  1,276
  1,358
  1,444
  1,534
  1,627
  1,724
  1,825
  1,930
  2,040
  2,155
  2,275
  2,401
  2,532
  2,669
Total liabilities and equity, $m
  3,206
  3,620
  4,059
  4,522
  5,010
  5,520
  6,054
  6,612
  7,193
  7,798
  8,428
  9,081
  9,761
  10,468
  11,201
  11,964
  12,758
  13,583
  14,441
  15,336
  16,267
  17,237
  18,248
  19,302
  20,402
  21,551
  22,752
  24,006
  25,317
  26,688
Debt-to-equity ratio
  0.410
  1.400
  2.220
  2.910
  3.510
  4.010
  4.450
  4.840
  5.170
  5.470
  5.730
  5.970
  6.180
  6.370
  6.540
  6.700
  6.840
  6.970
  7.090
  7.210
  7.310
  7.400
  7.490
  7.570
  7.650
  7.720
  7.790
  7.850
  7.910
  7.970
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  325
  380
  430
  482
  537
  594
  655
  718
  784
  852
  923
  998
  1,075
  1,155
  1,239
  1,326
  1,416
  1,510
  1,609
  1,711
  1,817
  1,929
  2,045
  2,166
  2,293
  2,425
  2,564
  2,708
  2,860
  3,019
Depreciation, amort., depletion, $m
  140
  158
  177
  197
  218
  241
  264
  288
  314
  340
  368
  396
  426
  457
  489
  522
  556
  592
  630
  669
  709
  752
  796
  842
  890
  940
  992
  1,047
  1,104
  1,164
Funds from operations, $m
  465
  538
  607
  679
  755
  835
  919
  1,006
  1,097
  1,192
  1,291
  1,394
  1,501
  1,612
  1,727
  1,848
  1,973
  2,103
  2,238
  2,380
  2,527
  2,680
  2,841
  3,008
  3,183
  3,365
  3,556
  3,755
  3,964
  4,183
Change in working capital, $m
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
Cash from operations, $m
  470
  544
  612
  685
  762
  842
  926
  1,013
  1,105
  1,200
  1,299
  1,402
  1,509
  1,621
  1,737
  1,857
  1,983
  2,113
  2,249
  2,391
  2,539
  2,693
  2,854
  3,022
  3,197
  3,380
  3,571
  3,772
  3,981
  4,200
Maintenance CAPEX, $m
  -123
  -140
  -158
  -177
  -197
  -218
  -241
  -264
  -288
  -314
  -340
  -368
  -396
  -426
  -457
  -489
  -522
  -556
  -592
  -630
  -669
  -709
  -752
  -796
  -842
  -890
  -940
  -992
  -1,047
  -1,104
New CAPEX, $m
  -358
  -381
  -404
  -426
  -448
  -470
  -492
  -513
  -535
  -557
  -579
  -602
  -626
  -650
  -676
  -702
  -730
  -759
  -790
  -822
  -857
  -893
  -931
  -971
  -1,013
  -1,057
  -1,104
  -1,154
  -1,206
  -1,261
Cash from investing activities, $m
  -481
  -521
  -562
  -603
  -645
  -688
  -733
  -777
  -823
  -871
  -919
  -970
  -1,022
  -1,076
  -1,133
  -1,191
  -1,252
  -1,315
  -1,382
  -1,452
  -1,526
  -1,602
  -1,683
  -1,767
  -1,855
  -1,947
  -2,044
  -2,146
  -2,253
  -2,365
Free cash flow, $m
  -11
  23
  51
  82
  116
  153
  193
  236
  282
  330
  380
  433
  488
  545
  605
  667
  731
  798
  867
  939
  1,013
  1,091
  1,171
  1,255
  1,342
  1,433
  1,527
  1,625
  1,728
  1,835
Issuance/(repayment) of debt, $m
  133
  373
  395
  417
  438
  460
  481
  502
  523
  544
  566
  589
  612
  636
  661
  687
  714
  743
  773
  804
  838
  873
  910
  949
  991
  1,034
  1,080
  1,129
  1,180
  1,234
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  133
  373
  395
  417
  438
  460
  481
  502
  523
  544
  566
  589
  612
  636
  661
  687
  714
  743
  773
  804
  838
  873
  910
  949
  991
  1,034
  1,080
  1,129
  1,180
  1,234
Total cash flow (excl. dividends), $m
  122
  395
  446
  499
  555
  613
  674
  738
  805
  874
  946
  1,021
  1,100
  1,181
  1,265
  1,353
  1,445
  1,540
  1,640
  1,743
  1,851
  1,964
  2,081
  2,204
  2,333
  2,467
  2,607
  2,754
  2,908
  3,068
Retained Cash Flow (-), $m
  -253
  -41
  -44
  -46
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -73
  -76
  -79
  -83
  -86
  -89
  -93
  -97
  -101
  -105
  -110
  -115
  -120
  -125
  -131
  -137
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  -131
  354
  402
  452
  506
  562
  621
  682
  747
  814
  883
  956
  1,032
  1,110
  1,192
  1,277
  1,366
  1,458
  1,554
  1,654
  1,758
  1,867
  1,980
  2,099
  2,223
  2,352
  2,487
  2,629
  2,777
  2,931
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  -126
  324
  350
  372
  392
  408
  419
  426
  429
  427
  420
  408
  392
  373
  350
  325
  297
  268
  239
  210
  182
  155
  130
  107
  86
  69
  53
  41
  30
  22
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Hess Midstream Partners LP is a fee-based, traditional master limited partnership formed to own, operate, develop and acquire a set of midstream assets to provide services to Hess and third-party crude oil and natural gas producers. The Company's assets are primarily located in the Bakken and Three Forks shale plays in the Williston Basin area of North Dakota (collectively referred as the Bakken). It operates its business through three segments: gathering; processing and storage; and terminaling and export. The Company’s gathering business consisted of its 20% controlling economic interest in Gathering Opco, which owns North Dakota natural gas, natural gas liquids and crude oil gathering systems. The Company’s processing and storage business consisted of its 20% controlling economic interest in the Tioga Gas Plant and its 100% interest in the Mentor Storage Terminal. The Company’s terminaling and export business consisted of its 20% controlling economic interest in Logistics Opco.

FINANCIAL RATIOS  of  Hess Midstream Partners LP (HESM)

Valuation Ratios
P/E Ratio 5.1
Price to Sales 2
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 2.7
Price to Free Cash Flow 8.4
Growth Rates
Sales Growth Rate -9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -27.1%
Cap. Spend. - 3 Yr. Gr. Rate -11%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.4%
Ret/ On Assets - 3 Yr. Avg. 7.1%
Return On Total Capital 9.5%
Ret/ On T. Cap. - 3 Yr. Avg. 7.9%
Return On Equity 9.5%
Return On Equity - 3 Yr. Avg. 12.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 33.3%
EBITDA Margin 60%
EBITDA Margin - 3 Yr. Avg. 46.5%
Operating Margin 40.4%
Oper. Margin - 3 Yr. Avg. 29.5%
Pre-Tax Margin 40.4%
Pre-Tax Margin - 3 Yr. Avg. 29.2%
Net Profit Margin 40.4%
Net Profit Margin - 3 Yr. Avg. 29.2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

HESM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HESM stock intrinsic value calculation we used $662 million for the last fiscal year's total revenue generated by Hess Midstream Partners LP. The default revenue input number comes from 0001 income statement of Hess Midstream Partners LP. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HESM stock valuation model: a) initial revenue growth rate of 13.8% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HESM is calculated based on our internal credit rating of Hess Midstream Partners LP, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Hess Midstream Partners LP.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HESM stock the variable cost ratio is equal to 9.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $229 million in the base year in the intrinsic value calculation for HESM stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 5.4% for Hess Midstream Partners LP.

Corporate tax rate of 27% is the nominal tax rate for Hess Midstream Partners LP. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HESM stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HESM are equal to 391.6%.

Life of production assets of 21.1 years is the average useful life of capital assets used in Hess Midstream Partners LP operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HESM is equal to -5.5%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $67.3 million for Hess Midstream Partners LP - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 54.635 million for Hess Midstream Partners LP is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Hess Midstream Partners LP at the current share price and the inputted number of shares is $1.0 billion.

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