Equitrans Midstream: Free Cash Flow Remains Decent Despite MVP Risks (NYSE:ETRN)

MLPs had a great year. The Global X MLP & Energy Infrastructure ETF (MLPX) was up more than 20% (total return) in 2022, beating the S&P 500 by nearly a whopping 50 percentage points. It was a second half story though, with MLPX actually losing out to the broad equity market since late June.

Investors now wonder what 2023 might have in store – will energy-related firms see a second wind? Or will a recession hurt the cyclical area? Hard to say, but let’s look specifically at one domestic energy transport firm.

MLP Stocks Surge In The First Half Of 2022

According to Bank of America Global Research, Equitrans Midstream Corporation (NYSE:ETRN) primarily engages in natural gas transmission, storage, and gathering in the Appalachian Basin. The firm owns, operates, acquires, and develops natural gas gathering, transmission and storage, and water services assets in the Appalachian Basin. It operates through three segments: Gathering System, Transmission and Storage System, and Water Service System.

The Pennsylvania-based $3.0 billion market cap Oil, Gas & Consumable Fuels industry company within the Energy sector has negative trailing 12-month GAAP earnings and pays a high 9.0% dividend yield, according to The Wall Street Journal.

The company recently reported a massive $583 million impairment related to the Mountain Valley Pipeline (MVP). That problem spot continues to cause issues for the energy transporter. More recently, shares fell hard following news that Senator Joe Manchin’s energy permitting bill would be excluded from the National Defense Authorization Act.

On valuation, analysts at BofA see earnings having fallen hard in 2022, but then turning back into the black next year and with flat y/y per-share profit growth in 2024. The Bloomberg consensus forecast is more upbeat, but much uncertainty rests with how the MVP plays out. Until that situation improves, cash flow could be a risk. Still, ETRN’s other business lines are able to generate big free cash flow, helping to prop up the yield. With a forward operating P/E near 17, according to Seeking Alpha, the stock is not exactly cheap. But is it a good time to buy according to the chart? Read on.

Equitrans Midstream: Earnings, Valuation, Dividend Yield Forecast

Looking ahead, corporate event data from Wall Street Horizon show an unconfirmed Q4 2022 earnings date of Tuesday, February 21 BMO. The event calendar is light on volatility catalysts aside from that report.

Corporate Event Calendar

The Technical Take

ETRN has been consolidating ever since notching its March 2020 low. Shares plunged from above $20 to under $4 as energy prices sank. WTI eventually dipped into negative territory later that year, but ETRN, among other energy equities, already was bouncing.

Fast forward to today, and the upper $5s to low $6s has repeatedly held as support. The recent test hit a low of $6.30, but also notice in the chart below that the RSI is bounded in the notoriously bearish range from 20 to 60. I would like to see the stock rise above the downtrend resistance line on volume with an RSI break above 60. Maybe that’s a lot to ask as ETRN would have to rise to near $10, a nearly 50% jump from here. A swing long now with a stop under $5.70 could work in the near term, however.

ETRN: Shares Consolidating – Watch the Upper-$5s

The Bottom Line

I’m a hold on ETRN. The valuation is not too cheap and there’s high uncertainty with respect to how MVP plays out. Still, shares are in the lower part of a technical pattern and could bounce while free cash flow and the yield are both high.