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Antero Midstream Aids Affiliate Amid Low Gas Price Scenario

Zacks Equity Research

Antero Midstream Corporation AM recently struck a share repurchase deal with its affiliate Antero Resources Corporation AR. Per the deal, Antero Midstream will buy back $100 million worth of its shares from Antero Resources. Moreover, the midstream company agreed to a growth incentive fee program, enabling better use of its resources.

Following the news, shares of Antero Midstream jumped 14.5% and that of Antero Resources gained 17.4%. The price performance of the stocks in the past week is depicted below. 

Share Buyback

This move, together with $25-million share repurchase in the last reported quarter, is expected to save more than $25 million per annum in total dividend payments for the energy infrastructure provider. The company targets to deliver dividends of $1.23 per share in 2020. Notably, it currently has $175 million remaining under the share buyback program.

Growth Incentive Fee Program 

The program will enable Antero Midstream to provide its affiliate a reduction in fees on low pressure gathering, starting from 2020 till 2023-end. This move is expected to drive Antero Resources’ throughput growth, which in turn will boost Antero Midstream's other businesses like gathering, processing, compression, fractionation and fresh water delivery system. Notably, fees for other services provided by the company remained unchanged.

Although it expects the program to reduce low pressure gathering revenues by $45-$50 million in 2020, the move will likely result in an optimization of resources and increase in profits from the other businesses.

Owing to the move, Antero Resources is expected to achieve 2020-2021 compound annual net output growth of 8-10%. Moreover, it will enable the natural gas producer to attain a reduction in costs by around $350 million over the 2020-2023 period. The move positions Antero Resources in a better platform, enabling it to survive in an extremely low natural gas pricing scenario.

Capital Budget

Antero Midstream expects 2020 capital budget in the range of $300-$325 million, reflecting a 22% reduction from its previous expectation, due to optimization of midstream infrastructure growth.

Zacks Rank and Other Stocks to Consider

Currently, Antero Midstream carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the energy sector include Enbridge Inc. ENB and Phillips 66 PSX, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Enbridge’s bottom-line estimates for the current quarter have increased from $2.00 per share to $2.03 in the past 30 days.

Phillips 66’s 2019 earnings per share have witnessed nine upward estimate revisions and no downward movement in the past 60 days.

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