On Monday, Citi raised its price target on shares of EnLink Midstream, LLC (NYSE:ENLC) to $16.00, up from the previous $13.00, while keeping a Buy rating on the stock. The adjustment comes as the firm revises its outlook on the company's operations in Oklahoma (OK) and its capital expenditure (capex) strategy, particularly concerning carbon capture and storage (CCS) projects.
EnLink Midstream's major customer in Oklahoma is expected to bring 60-70 wells online in 2024, which is over twice the number of wells connected in 2023. This anticipated increase in well connections is a driving factor behind the raised target price, as it may signal a stronger natural gas market ahead.
The company is also re-evaluating its approach to CCS, particularly the Pecan Island project. Management is considering pivoting towards more economically viable projects, which suggests a move to a portfolio of lower-capex projects. This shift is expected to increase cash flow, which could be redirected towards EnLink Midstream's stock buyback program throughout the year.
Citi anticipates that any surplus cash flow not allocated to CCS projects will contribute to an aggressive buyback strategy. Projections include nearly $400 million in additional buybacks, roughly equating to a $2/unit benefit, by 2028. This strategy is expected to be executed while the company continues to reduce its leverage to below 3x.
A positive catalyst watch has been opened for EnLink Midstream, with a key update expected during the first quarter 2024 earnings call on May 1. The firm predicts that EnLink will prioritize less capital-intensive CCS projects over the Pecan Island project in the near term, which should enhance the company's capital return outlook and drive cash flow accretion.
The reassessment of the Pecan Island CCS project comes as EnLink Midstream's addressable market for CCS expanded significantly, growing from 80 million tons per annum (mtpa) to 215 mtpa.
Consequently, the average build multiple has been adjusted downward from 7x to 5x, indicating a more cost-effective strategy for future CCS projects. Any positive developments announced in the upcoming earnings update are expected to positively influence EnLink Midstream's trading levels.
InvestingPro Insights
EnLink Midstream, LLC (NYSE:ENLC) is currently trading near its 52-week high, which aligns with the positive outlook presented by Citi. The company's stock price is at 97.43% of its 52-week high, reflecting investor confidence and a strong market presence.
, EnLink Midstream has shown a commitment to returning value to shareholders, maintaining dividend payments for 11 consecutive years, with a notable dividend yield of 3.84% as of the latest data.
InvestingPro Tips indicate that EnLink Midstream's stock price movements have been quite volatile, which investors should consider when looking at the company's future performance, especially in the context of its strategic shift towards more economically viable CCS projects. Moreover, the company's short-term obligations exceeding its liquid assets suggest a closer review of its liquidity position may be warranted.
With the company's next earnings date approaching on April 30, 2024, investors will be keen to watch for updates on these strategic initiatives. For those looking to delve deeper into EnLink Midstream's financials and gain further insights, there are additional InvestingPro Tips available at https://www.investing.com/pro/ENLC. To access these valuable insights, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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