Hess Midstream

Hess Midstream LP earns a 4-star quantitative star rating, illustrating our stance that this share class offers a somewhat attractive opportunity for investors. The stock currently trades at a 7% discount to our quantitative fair value estimate of $41.30 per share; however, some caution is warranted due to this estimate's medium uncertainty rating.

The company's profitability increases our estimated fair value. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. For example, the firm's enterprise value to free cash flow ratio of 8.2 lies in the bottom 20% globally. This can be a sign of operational efficiency and potential for the company to fund growth, pay dividends, or reduce debt without needing additional capital. We believe this is a sign that shares could be cheap.

On a different note, the company's valuation metrics are potentially concerning. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's book value yield of 10.6%, a core component of valuation, falls in the bottom 10% globally. The market value of this company's shares looks expensive relative to the book (accounting) value of equity, which, despite our favorable price/fair value ratio, is a negative attribute.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. While we believe the stock is undervalued, this outperformance had a negative impact on our valuation estimate.

The company's narrow economic moat rating suggests it should be able to maintain robust profitability for a decade or longer before competition erodes its advantage. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.