Western Midstream

Western Midstream Partners LP is assigned a 4-star quantitative star rating, reflecting our opinion that this share class offers a somewhat attractive opportunity for investors. The stock currently trades at a 10% discount to our quantitative fair value estimate of $49.07 per share; however, some caution is warranted due to this estimate's medium uncertainty rating.

The company's favorable dividend structure strengthens our estimated fair value. Dividends represent a stable form of future cash flows returned to shareholders, reducing the perceived risk of a business. For example, the firm's forward dividend yield of 8.2% falls in the top 10% compared with peers globally. Expected dividend payments over the coming year relative to the current share price are favorable, which contributes to our view that shares are undervalued.

The company's profitability is an additional encouraging factor. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. The firm's earnings yield of 7.4%, a core component of profitability, sits in the top 30% globally. This suggests that it is generating substantial earnings relative to its share price, which further promotes our favorable price/fair value ratio.

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 quantitative moat rating indicates it could outearn its cost of capital and maintain robust margins for 10 years or longer. In addition, the company's moderate financial health score is decent and doesn't seriously concern us with regard to financial distress.