On Monday, Morgan Stanley adjusted its stance on Western Gas Partners (NYSE:WES) stock, downgrading it from Overweight to Equalweight and setting a price target of $42.00.
This revision reflects a shift in valuation following Western Gas's significant year-to-date performance, which has seen the stock yield a 35.2% total return, outpacing the AMNAX benchmark index's 26.4% return.
The rationale behind the downgrade lies in the belief that the stock's valuation has reached a more complete state, with the risk/reward balance now appearing more even. Concerns have been raised regarding the potential for a sponsor overhang to limit further gains.
Occidental Petroleum (NYSE:OXY), the parent company of Western Gas, has been actively selling WES common units as part of its broader strategy to reduce debt and divest assets.
In late August, Occidental offloaded 19.5 million WES common units at a price of $35.75 each through an underwritten secondary offering, which included the exercise of a partial greenshoe option by the underwriter. The transaction provided Occidental with proceeds totaling approximately $697.1 million. It's important to note that Western Gas itself did not receive any proceeds from this sale.
Following this transaction, Occidental's ownership in Western Gas has been reduced to 165.7 million common units. This represents 43.5% of the total 380.5 million common units that were issued and outstanding as of August 12, 2024, according to the most recent Schedule 13D filed by Occidental. The sale of these units is part of Occidental's ongoing efforts to reach its financial targets, which includes the reduction of its debt load and the divestiture of certain assets.
In other recent news, Western Gas Partners has been the subject of several noteworthy developments. RBC Capital Markets has revised its price target for the company to $38, up from $36, following a steady second-quarter financial report and reaffirmed guidance for the full year. The company's consistent performance and new business contracts in the Delaware and Uinta Basins have contributed to this positive adjustment.
On the financial front, Western Midstream Partners (NYSE:WES) has priced an $800 million senior notes offering at 5.45% due 2034, with the intention of using the proceeds for the repayment of existing debt and general partnership needs. This transaction is expected to be completed soon.
Furthermore, Western Midstream Partners reported strong Q2 2024 results, with a net income of $370 million and adjusted EBITDA of $578 million. The company has also managed to meet its net leverage ratio target ahead of schedule through the sale of non-core assets.
Looking ahead, Western Midstream anticipates record operated throughput, adjusted EBITDA, and free cash flow for the year, and plans a decrease in capital expenditure in 2025. These are the latest developments for Western Gas Partners.
InvestingPro Insights
In light of Morgan Stanley's recent adjustment of Western Gas Partners' stock rating, it's beneficial to consider additional perspectives provided by InvestingPro. With a perfect Piotroski Score of 9, Western Gas demonstrates strong financial health and profitability. Analysts have also revised their earnings upwards for the upcoming period, indicating potential for future growth.
From a valuation standpoint, Western Gas is trading at a low P/E ratio of 10.11, suggesting that the stock may be undervalued relative to its near-term earnings growth. This is supported by a PEG Ratio of 0.23 for the last twelve months as of Q2 2024, which further implies that the stock's price is modest in relation to its earnings growth rate. Additionally, with a dividend yield of 8.85% as of the last recorded date, Western Gas offers a significant return to shareholders through its consistent dividend payments over the past 12 years.
InvestingPro also highlights that Western Gas has experienced a high return over the last year, with a 66.09% total return, and its liquid assets exceed short-term obligations, suggesting a solid liquidity position. For readers interested in deeper analysis, there are even more InvestingPro Tips available for Western Gas at https://www.investing.com/pro/WES, providing a comprehensive look at the company's financial health and market position.
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