On Tuesday, Wells Fargo (NYSE:WFC) adjusted its price target for Western Gas Partners, listed on the New York Stock Exchange under the ticker NYSE:WES, raising it to $35.00 from the previous $34.00. The firm maintained its Equal Weight rating on the stock.
The revision reflects a positive outlook based on several factors including a strong performance in the first quarter of 2024, expected higher volumes in alignment with company guidance, and an anticipated increase in unit repurchases starting in 2027 due to a forecasted decrease in leverage.
The investment firm's decision to increase the price target comes after Western Gas Partners reported a quarter that surpassed expectations. The analyst pointed to the first quarter's earnings, which beat initial estimates, as a key driver for the updated price target. This strong performance has led to an upward revision of future earnings estimates.
Wells Fargo's new price target is informed by a composite of valuation methods. These include a three-stage Dividend Discount Model (DDM) with an 11% discount rate and a long-term decline rate of 1%, alongside a three-stage Discounted Cash Flow (DCF) analysis with a slightly lower discount rate of 9.7% and the same long-term decline rate. Additionally, a Sum of the Parts (SOTP) valuation based on the company's projected 2025 earnings also played a role in setting the price target.
The analyst's commentary sheds light on the rationale behind the increased price target. "We are raising our PT to $35/unit from $34/unit to reflect our higher estimates (Q1'24 beat and higher assumed volumes - in line with guidance), and higher assumed unit repurchases in 2027+ (as leverage declines in the outer years of our forecast)," the Wells Fargo analyst stated. The comprehensive valuation approach indicates a nuanced analysis of Western Gas Partners' financial prospects.
InvestingPro Insights
Western Gas Partners (NYSE:WES) has drawn attention with its recent performance and revised outlook from Wells Fargo. To provide a deeper understanding of the company's financial health and stock potential, InvestingPro data reveals a market capitalization of $14.68 billion and a P/E ratio of 10.84, which is considered low relative to the company's near-term earnings growth. Additionally, Western Gas Partners boasts a strong gross profit margin of 71.09% over the last twelve months as of Q1 2024.
InvestingPro Tips highlight that Western Gas Partners not only pays a significant dividend to shareholders, with a current yield of 9.07%, but also has a history of maintaining dividend payments for 12 consecutive years. This consistency is complemented by a high return over the last year, with a price total return of 56.76%. Analysts predict the company will be profitable this year, which may provide further confidence to investors. For those seeking more in-depth analysis, InvestingPro offers additional tips on Western Gas Partners, which can be accessed with a special offer using the coupon code PRONEWS24 for an extra 10% off a yearly or biyearly Pro and Pro+ subscription. There are 13 additional InvestingPro Tips available that could provide valuable insights for investors considering Western Gas Partners.
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