Beyond 2024: Examining Multi-Year Guidance for Midstream

• Many midstream companies provide guidance for the year ahead, but a select group also offer EBITDA growth guidance or targets for the next few years.
• Visibility to future EBITDA growth provides important context for dividend growth.
• Midstream’s ability to generate consistent EBITDA growth regardless of the commodity price backdrop is a distinctive advantage relative to the rest of the energy space.

With fourth quarter earnings season under way, midstream/MLP investors are largely focused on company outlooks for 2024, which tend to accompany results. While 2024 guidance continues to trickle in, it bears highlighting that multiple companies in the midstream space provide multi-year outlooks – a unique advantage of midstream within the broader energy space. Today’s note looks at some of the midstream corporations and MLPs that have provided multi-year guidance and why this is important for investors.

Many midstream companies provide EBITDA guidance for the year ahead, but a select group also offers guidance or targets for the next few years. This provides helpful visibility for investors and sets expectations for management to then execute against. It also underscores the predictability of cash flows provided by fee-based businesses operating under long-term contracts.

Typically, companies with a long-term growth target for adjusted EBITDA will acknowledge that year-to-year changes can be lumpy due to project timing. For example, Williams (WMB) has guided to long-term adjusted EBITDA growth of 5-7%, but management is anticipating a more pronounced step-change for 2025 given expected project startups (read more). Note that WMB is holding its analyst day tomorrow.

Canadian C-Corp TC Energy (TRP CN) is targeting a compound annual growth rate (CAGR) of 7% for comparable EBITDA for 2023 to 2026. This excludes the liquids pipeline business, which is expected to spin off in 2H24 as South Bow Corporation. South Bow is targeting long-term comparable EBITDA growth of 2-3%.

Though not formal guidance, MPLX (MPLX) management discussed on their January earnings call that they aim for mid-single-digit growth in cash flows over multi-year periods. They also pointed to the stair-step nature of growth as projects come online.

Alongside its recent 4Q results, Hess Midstream (HESM) guided to 12.5% EBITDA growth for 2024 (at the midpoint) and to at least 10% growth in adjusted EBITDA in each of 2025 and 2026 based on minimum volume commitments that have already been set.

For investors, long-term outlooks for EBITDA growth provide helpful visibility. Multi-year guidance reinforces the benefits of midstream’s fee-based businesses and cash flow stability. Importantly, expectations are largely based on growth projects for base businesses and are not dependent on the price level of oil or natural gas. Midstream’s ability to generate consistent EBITDA growth regardless of the commodity price backdrop is a distinctive advantage relative to the rest of the energy space.

EBITDA growth expectations also provide important context for companies with multi-year dividend growth guidance. For example, HESM is targeting 5% annual distribution growth through 2026. Given expected EBITDA growth of 10% or more each year through 2026, investors can likely feel more confident in HESM’s ability to grow its payout. Similarly, TRP points to 3-5% sustainable dividend growth, while targeting a 7% comparable EBITDA CAGR through 2026. WMB plans to grow its dividend in line with core business adjusted EBITDA growth and recently increased its dividend by 6.1%.

Long-term EBITDA outlooks add to confidence in midstream payouts going forward, alongside free cash flow generation and a greater focus on sustainable dividend growth (read more). This can be especially important context for generous yields. As of February 9, the Alerian MLP Infrastructure Index (AMZI) and the Alerian Midstream Energy Select Index (AMEI) were yielding 7.6%% and 6.6%, respectively.

Select midstream companies provide multi-year financial guidance or targets, which reflects the predictability of cash flows from fee-based businesses, regardless of the commodity price environment. These outlooks provide important visibility to investors and add to confidence in future dividend growth.

AMZI is the underlying index for the Alerian MLP ETF (AMLP) and the ETRACS Alerian MLP Infrastructure Index ETN Series B (MLPB). AMEI is the underlying index for the Alerian Energy Infrastructure ETF (ENFR) and the ALPS Alerian Energy Infrastructure Portfolio (ALEFX).

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