Antero Midstream's Weakness Belies Its Investment Potential

Shares of Antero Midstream Partners LP (NYSE: AM) represent an opportunity to buy into the growth of Appalachian energy production, according to Stifel.

The Denver-based company, which services natural gas and oil production by Antero Resources Corp (NYSE: AR), has seen “continued weakness,” analyst Brian Brungardt Jr. said in a Sunday note.

One factor in the weak pricing could be delays in permit approvals for Appalachia projects due to a lack of a quorum at the Federal Energy Regulatory Commission, or FERC, Brungardt said. The commission’s quorum was restored Aug. 10 after commissioner Robert Powelson was sworn in.

“In turn, we anticipate the project backlog will begin to clear, providing greater clarity for takeaway constraints to be resolved,” Brungardt said.

Stifel upgraded Antero Midstream Partners LP from Hold to Buy on Sunday and maintained a $23 target price.

Positioned For Growth

Antero Midstream is “well-positioned” to benefit from the long-term development of the Appalachia basin, Brungardt said.

The water volumes in the partnership between Antero Midstream and Antero Resources stands to benefit in the near-term from well design optimization, “which drives great production volumes per well on the gathering system,” the analyst said.

Antero Midstream also recently entered a joint venture for processing and fractionation, according to the Stifel note.

The research firm anticipates that the energy stock will outperform as investors become “more constructive” on future Appalachia volumes creating infrastructure demand for the company and on Antero Midstream’s cash flow.

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