On Monday, Goldman Sachs (NYSE:GS) adjusted its financial outlook for DT Midstream (NYSE:DTM), increasing the price target to $74 from the previous $66, while continuing to advise a Sell rating on the stock. The adjustment comes after DT Midstream reported third-quarter results for 2024 which aligned with expectations. The company saw improved gathering margins which balanced out weaker than anticipated pipeline contributions.
DT Midstream anticipates gas gathering volumes to increase towards the end of the fourth quarter of 2024, with further growth expected into the first half of 2025, although this is dependent on market demand timing. Consequently, the company has raised the lower end of its EBITDA guidance for 2024, now expecting between $950 million to $980 million, compared to the previous range of $930 million to $980 million. This updated guidance is in line with Goldman Sachs' own estimate of $979 million and slightly below the FactSet consensus of $982 million.
The company's focus on medium to long-term growth was also discussed, noting that while the Final Investment Decision (FID) on the LEAP Phase 4 project in the Haynesville region is a positive development, it is considered modest in scale. The project, expected to be decided upon by the first half of 2026, is projected to add 200 million cubic feet per day, which is at the lower end of the previously guided 200 to 400 million cubic feet per day range. Additionally, a competitor's project in the same area has recently been given the green light.
DT Midstream also experienced a delay in the FID for the carbon capture and storage (CCS) project, and there were no significant new details on data center projects, which were seen as slight setbacks. Goldman Sachs has updated its estimates to account for the improved gathering margins, a slightly slower ramp-up in volumes for 2025, the LEAP expansion, and the postponed contributions from the CCS project.
The new price target reflects a continued re-rating among peers and represents approximately 10.5 times the firm's estimated 2025 EBITDA, suggesting a valuation of around 10 times the 2026 EBITDA. Despite the target increase, Goldman Sachs maintains a cautious stance on DT Midstream shares.
In other recent news, DT Midstream, Inc. has increased its adjusted EBITDA guidance for 2024, as announced during its Third Quarter 2024 Earnings Conference Call. The company's CEO, David Slater, emphasized DT Midstream's strong operational performance and commitment to growth through organic projects, including the final investment decision for the LEAP Phase 4 expansion. Despite a slight decrease in adjusted EBITDA for Q3, the company maintains a positive outlook, with several expansion projects and new opportunities underway.
DT Midstream has set its adjusted EBITDA guidance for 2024 to a range of $950 million to $980 million. The company is also pursuing new power and data center opportunities, with six potential projects under discussion. A carbon capture project in Louisiana is aiming for a final investment decision by mid-2025.
These recent developments also include a stable dividend declaration at $0.735 per share, a long-term growth outlook of 5% to 7%, and a positive outlook for natural gas demand, supported by LNG exports and industrial needs. The company is anticipated to maintain a free cash flow positive status for 2024 and 2025.
Despite a slight decline in Northeast volumes, recovery is expected, and the company remains optimistic about its relationship with Chesapeake and SWN post-merger.
InvestingPro Insights
DT Midstream's recent performance and future outlook can be further illuminated by data from InvestingPro. The company's market capitalization stands at $8.72 billion, reflecting its significant presence in the midstream energy sector. With a P/E ratio of 21.6, DTM is trading at a premium compared to some industry peers, which aligns with Goldman Sachs' cautious stance.
InvestingPro Tips highlight that DTM has raised its dividend for 4 consecutive years, a positive sign for income-focused investors. This is supported by the current dividend yield of 3.3% and a dividend growth rate of 6.52% over the last twelve months. These figures suggest a commitment to shareholder returns, which could be attractive despite Goldman's Sell rating.
The company's financial health appears robust, with a gross profit margin of 77.97% and an operating income margin of 50.82% for the last twelve months as of Q3 2024. These strong margins support DT Midstream's ability to navigate market challenges and potentially fund future growth projects like the LEAP Phase 4 expansion.
It's worth noting that DTM is trading near its 52-week high, with the current price at 98.01% of the 52-week peak. This, combined with a 64.77% price total return over the past year, indicates strong market confidence in the company's performance and outlook.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for DT Midstream, providing a deeper understanding of the company's financial position and market dynamics.
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