Antero Midstream Corporation AM is a leading midstream energy company, which owns and operates natural gas gathering, compression, processing, and fractionation assets primarily in the prolific Appalachian Basin in the United States. The company provides integrated midstream services to the leading natural gas producer Antero Resources Corporation under long-term contracts. The company’s gathering and processing systems comprise high and low pressure gathering pipelines and compression stations with a total compression capacity of 4.6 billion cubic feet per day (Bcf/d). Additionally, AM also operates water handling systems for freshwater delivery and water storage systems in the Appalachian Basin.

Let us delve into the strengths and risk factors associated with AM stock to understand if this is the right time to buy or hold.

Positive Factors:

AM Outperforms Sub-Industry and Oil Energy Sector: AM stock has outperformed the U.S. Integrated Oil and Gas sub-industry as well as the broader Oil-Energy sector in the past year. The stock has gained 26.9% against the sub-industry and the sector’s decline of 15.7% and 1.7%, respectively, in the past 12 months.

Growth Potential From Antero Resources’ Development Program: Antero Midstream primarily provides its services to Antero Resources Corporation, which is a leading natural gas producer operating in the Appalachian Basin. Nearly all of Antero Resources’ (“AR”) acreage in the Appalachian Basin is dedicated to Antero Midstream for gathering, compression, and water services. Furthermore, AM operates a joint venture with MPLX LP, which provides processing and fractionation related services to AR. AR’s extensive drilling inventory in Appalachia and its plans to complete 60- 65 net horizontal wells in the region in 2025 provide significant growth opportunities for AM. Antero Midstream is expected to gain from increased service volumes as Antero Resources increases its drilling activity and ramps up production. Since AM’s midstream and freshwater delivery services to Antero Resources are backed by long-term contracts, the midstream firm generates stable fee-based revenues.

Dividend Yield and Strong Free Cash Flows: Antero Midstream’s current dividend yield at 5.29% exceeds the U.S. Integrated Oil and Gas sub-industry average of 2.55%. The company paid an annualized dividend of 90 cents per share in 2024. The company also focuses on maintaining a solid free cash flow that allows it to support dividend payments, share repurchases, and debt reduction. In 2024, the company generated $250 million in free cash flow after dividends, showcasing an improvement of 61% year over year. For 2025, the company has projected free cash flow after dividends in the range of $250-$300 million, implying an improvement of 10% at midpoint.

Risk Factors:

Huge Debt Burden: Antero Midstream’s balance sheet demonstrates a notable level of debt exposure, which may affect its financial flexibility. The company’s long-term debt was $3.12 billion at the end of the fourth quarter with no cash and cash equivalents. Even though the company is actively working toward decreasing its debt load, the high level of long-term debt may impede its ability to navigate economic downturns. Furthermore, the company’s increasing capital expenditures and potential M&A activity may further affect future debt levels and weigh down on its financials.

Reliance on Antero Resources: Being its primary customer, Antero Resources’ development plan directly affects the demand for Antero Midstream’s gathering, compression and water handling services. AM derives a substantial portion of its revenues from Antero Resources, hence, any development that adversely impacts the company’s production or financial health, in turn, affects AM. A slowdown in AR’s drilling and production activities or changes in its capital expenditure priorities might have an adverse impact on AM’s earnings.

Regulatory Risks: The midstream energy sector faces environmental scrutiny, especially over expansions in pipeline and water handling infrastructure. Heightened environmental concerns may force the company to invest more in environmental controls and toward maintaining regulatory compliance — expenses that could erode margins. Additionally, if demand for fossil fuels shifts toward alternative energy sources, both AM and its primary customer, Antero Resources, could see reduced throughput, adversely impacting fee-based revenues.

Final Thoughts

Even though challenges like potential regulatory hurdles, significant debt exposure, and reliance on a single customer remain, Antero Midstream’s low-risk business model, driven by long-term contracts with Antero Resources and its commitment to sustained shareholder returns, supports a positive investment outlook.

AM’s Zacks Rank and Key Picks

AM currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks from the energy sector are Archrock Inc. AROC, Matador Resources Corporation MTDR and NextDecade Corporation NEXT. Archrock currently sports a Zacks Rank #1 (Strong Buy), while Matador Resources and NextDecade carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is an energy infrastructure company based in the United States with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

Matador Resources is a leading U.S.-based exploration and production firm. The company has consistently exceeded production expectations, demonstrating operational efficiency and robust growth. MTDR’s production efficiency, combined with the favorable oil price environment, is expected to positively impact its bottom line.

NextDecade is an emerging player in the LNG space with its Rio Grande LNG project in Texas. The demand for LNG as a clean burning fuel continues to grow, and the commodity is expected to play a crucial role in the energy transition process. The company’s focus on expanding its liquefaction capacity is expected to enhance its position in the rapidly growing global LNG market, enabling it to meet the rising demand for natural gas.

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