Is EQT Midstream Partners (EQM) a Good Value Investor Pick?

Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put EQT Midstream Partners, LP EQM stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, EQT Midstream Partners has a trailing twelve months PE ratio of 6.6, as you can see in the chart below:

 
This level actually compares favorably with the market at large, as the PE for the S&P 500 stands at about 18.32. If we focus on the long-term PE trend, EQT Midstream Partners’ current PE level puts it below its midpoint of 14.52 over the past five years, with the number having risen rapidly over the past few months. However, the current level stands below the highs for the stock, suggesting that it can be a solid entry point.

 
Moreover, the stock’s PE also compares favorably with the Zacks Oils-Energy Market sector’s trailing twelve months PE ratio, which stands at 13.31. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.

 
We should also point out that EQT Midstream Partners has a forward PE ratio (price relative to this year’s earnings) of 7.42, so it is fair to expect an increase in the company’s share price in the near future.

P/CF Ratio

An often, overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.

The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.

In this case, EQT Midstream Partners’ P/CF ratio of 5.36 is lower than the Zacks Oil&Gas Production-Pipeline Market industry average of 7.88, which indicates that the stock is somewhat undervalued in this respect.

 
Broad Value Outlook

In aggregate, EQT Midstream Partners currently has a Value Score of B, putting it into the top 40% of all stocks we cover from this look. This makes EQT Midstream Partners a solid choice for value investors.

For example, the P/CF ratio comes in at 4.06, which is better than the industry average of 8.36. Clearly, EQM is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though EQT Midstream Partners might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth Score of C and Momentum Score of D. This gives EQM a Zacks VGM score — or its overarching fundamental grade — of C. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen one upward revision in the past sixty days compared to no downward revision, while the full year 2020 estimate has also seen one upward revision compared to no downward revision in the same time period.

As a result, the current year consensus estimate increased 2.1% in the past two months, whereas the full year 2020 estimate rose 3%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

EQT Midstream Partners, LP Price and Consensus

EQT Midstream Partners, LP Price and Consensus

EQT Midstream Partners, LP price-consensus-chart | EQT Midstream Partners, LP Quote

Notably, the stock with favorable estimate trends has a Zacks Rank #2 (Buy), which is why we are looking for outperformance from the company in the near term.

Bottom Line

EQT Midstream Partners is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Furthermore, the company carries a Zacks Rank #2, indicating that the broader factors are favorable for the company.

So, value investors might want to delve deeper in this stock as it appears to be a compelling pick.

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