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Why Is U.S. Midstream Still Undervalued?

It's been left behind in the runup in energy prices, and here's why.

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With the recent recovery in U.S. oil and gas prices, many energy stocks have soared to fairly valued levels, while U.S. midstream continues to lag the rest of the space and remains undervalued. Midstream tilts toward more value than growth, considering the lack of near-term growth for many, with high yields and substantial excess cash flow after distributions, dividends, and capital spending to devote to debt reduction and share and unit buybacks. Several U.S. midstream names--including Enterprise Products Partners (EPD), Plains All American Pipeline (PAA), and MPLX (MPLX)--have been repurchasing units already. Considering current price/fair value and the quality of the business, we’d highlight Cheniere Energy (LNG) as an idea worth considering.

We’ve yet to see a stronger midstream recovery for a few reasons, in our view.

Stephen Ellis does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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