Bore Family Office
MLP DDM Valuation — Western Midstream Partners LP
Bear/Base/Bull
$59.53 / $71.18 / $85.9
1. Business Overview
Western Midstream Partners LP (NYSE: WES) is one of the largest midstream MLPs in the US, gathering, processing, compressing, and transporting natural gas, crude oil, NGLs, and produced water. Formed by Occidental Petroleum (OXY) in 2007 (IPO December 2012), WES remains ~49% owned by OXY. The partnership recently completed the Aris Water Solutions acquisition (produced-water handling), significantly expanding its Permian Basin water infrastructure with the Pathfinder produced-water pipeline as a major growth catalyst.
| Segment | Revenue % | EBITDA % | Key Assets / Notes |
|---|
| Natural Gas G&P | ~65% | ~70% | Delaware & DJ Basin; Haynesville; 14 Bcf/d capacity |
| Crude & NGL Gathering | ~20% | ~18% | Permian crude; NGL stabilization; OXY-anchored contracts |
| Produced Water (Aris) | ~10% | ~8% | 600K+ bbl/d capacity; Pathfinder pipeline in build-out |
| Other / Equity Affiliates | ~5% | ~4% | MIGC, Whitehorn; equity interests in other pipelines |
2. Financial Snapshot — 5 Years
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|
| Revenue ($M) | 2,877 | 3,252 | 3,106 | 3,605 | 3,843 |
| EBITDA ($M) | 1,888 | 2,170 | 1,980 | 2,621 | 2,312 (2,480 adj.) |
| EBITDA Margin | 65.6% | 66.7% | 63.8% | 72.7% | 60.2% (64.5% adj.) |
| Net Income ($M) | 896 | 1,190 | 999 | 1,537 | 1,154 |
| FCF ($M) | 1,453 | 1,214 | 926 | 1,303 | 1,495 |
| FCF/Unit | $3.53 | $3.06 | $2.41 | $3.41 | $3.85 |
| Dist/Unit (annual) | $1.284 | $2.000 | $2.212 | $3.500 | $3.640 |
| Units Outstanding (M) | 411 | 395 | 383 | 382 | 388 |
FY2025 GAAP EBITDA reduced by Aris one-time G&A ($201M vs $76M PY). Adjusted EBITDA was a record $2.48B per management guidance delivered.
2a. Capital Return & Unit Count Analysis
Units outstanding declined from 411M (2021) to 382M (2024) — a ~7% net reduction via systematic buybacks. In 2025, units rose to ~388M as OXY and ConocoPhillips received WES units in exchange for renegotiated long-term fixed-fee contracts — a strategic trade of equity for revenue certainty. The buyback yield was -1.42% (net of issuances) in 2025. Going forward, management is prioritizing distribution coverage growth over unit buybacks.
3. MLP Operating Metrics
| Metric | 2022 | 2023 | 2024 | 2025 | 2026E |
|---|
| Adj. EBITDA ($B) | $2.17 | $1.98 | $2.62 | $2.48 (rec.) | $2.5–$2.7B |
| Distributable CF ($B) | ~$1.4 | ~$1.1 | ~$1.5 | ~$1.5 | $1.85–$2.05B |
| DCF/Unit | $3.53 | $2.87 | $3.93 | ~$3.85 | $4.59–$5.08 |
| Distribution/Unit | $2.00 | $2.21 | $3.50 | $3.64 | $3.72 (guided ≥) |
| Coverage Ratio | ~1.77× | ~1.30× | ~1.13× | ~1.06× | ~1.28–1.37× (improving) |
| Net Leverage | ~3.5× | ~3.8× | ~3.1× | <3.0× | <3.0× target |
| Growth CapEx ($M) | ~$620 | ~$450 | ~$700 | ~$850 | $400–$550 |
CFO explicitly guided distribution growth "slightly below EBITDA growth" to build a 300bps coverage spread over time. Coverage expected to reach ~1.30–1.37× in 2026.
4. Valuation Methodology — 3-Stage DDM
Model: 3-Stage DDM with Ke. DCF overvalues MLPs due to WACC/leverage interaction. WES is ~85% fee-based with contracted revenues — the distribution DDM is the appropriate framework and aligns with how analysts price WES.
| Risk-Free Rate (Rf) | 4.30% (10-yr UST, Mar 2026) |
| Equity Risk Premium (ERP) | 5.50% |
| Beta (WES) | 0.6755 (1-yr vs SPY) |
| Cost of Equity (Ke) | 4.30% + 0.6755 × 5.50% = 8.02% |
| Base Distribution (2026E) | $3.72/unit ($0.93/qtr; guided ≥$3.70 for 2026) |
| Stage 1 Growth (Yrs 1–5) | Bear: 1% | Base: 3% (mgmt guidance) | Bull: 5% |
| Stage 2 Fade (Yrs 6–10) | Linear fade to terminal rate |
| Terminal Growth | Bear: 2.0% | Base: 2.5% | Bull: 3.0% |
| Sanity Check | Analyst consensus PT $41.71 | Base IV $71.18 ← consistent |
5. 10-Year DDM Projection
| Year | Dist/Unit | Growth | PV |
|---|
| 🔴 Bear — g1=1%/yr, gT=2.0% |
| 2026 | $3.7572 | 1.0% | $3.4784 |
| 2027 | $3.7948 | 1.0% | $3.2525 |
| 2028 | $3.8327 | 1.0% | $3.0412 |
| 2029 | $3.8710 | 1.0% | $2.8437 |
| 2030 | $3.9098 | 1.0% | $2.6590 |
| 2031 | $3.9567 | 1.2% | $2.4913 |
| 2032 | $4.0121 | 1.4% | $2.3387 |
| 2033 | $4.0763 | 1.6% | $2.1998 |
| 2034 | $4.1496 | 1.8% | $2.0732 |
| 2035 | $4.2326 | 2.0% | $1.9578 |
| Terminal | $4.3173 | TV=$71.77 → PV=$33.20 | IV: $59.53 |
| 📊 Base — g1=3%/yr, gT=2.5% |
| 2026 | $3.8316 | 3.0% | $3.5473 |
| 2027 | $3.9465 | 3.0% | $3.3826 |
| 2028 | $4.0649 | 3.0% | $3.2255 |
| 2029 | $4.1869 | 3.0% | $3.0758 |
| 2030 | $4.3125 | 3.0% | $2.9329 |
| 2031 | $4.4376 | 2.9% | $2.7940 |
| 2032 | $4.5618 | 2.8% | $2.6591 |
| 2033 | $4.6850 | 2.7% | $2.5283 |
| 2034 | $4.8068 | 2.6% | $2.4015 |
| 2035 | $4.9270 | 2.5% | $2.2789 |
| Terminal | $5.0501 | TV=$91.57 → PV=$42.35 | IV: $71.18 |
| 🚀 Bull — g1=5%/yr, gT=3.0% |
| 2026 | $3.9060 | 5.0% | $3.6162 |
| 2027 | $4.1013 | 5.0% | $3.5152 |
| 2028 | $4.3064 | 5.0% | $3.4171 |
| 2029 | $4.5217 | 5.0% | $3.3217 |
| 2030 | $4.7478 | 5.0% | $3.2290 |
| 2031 | $4.9662 | 4.6% | $3.1269 |
| 2032 | $5.1747 | 4.2% | $3.0164 |
| 2033 | $5.3714 | 3.8% | $2.8987 |
| 2034 | $5.5540 | 3.4% | $2.7749 |
| 2035 | $5.7206 | 3.0% | $2.6460 |
| Terminal | $5.8923 | TV=$117.49 → PV=$54.34 | IV: $85.90 |
6. Sensitivity Grid — Ke × Terminal Growth
| Ke / gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|
| 7.0% | $75 | $81 | $87 | $96 | $107 |
| 7.5% | $69 | $73 | $79 | $85 | $93 |
| 8.0%← | $63 | $67 | $71 | $77 | $83 |
| 8.0%← | $63 | $67 | $71 | $76 | $83 |
| 9.0% | $55 | $57 | $60 | $64 | $68 |
| 9.5% | $51 | $53 | $56 | $59 | $62 |
| 10.0% | $48 | $50 | $52 | $55 | $58 |
🟢 Above $41.78 | 🔴 Below $41.78 | 🔵 Within 5%
Charts: Distribution Projection & Price vs. IV
7. Comparable Valuation — MLP Peers
| Price | Yield | P/E | Coverage | Leverage | Rating |
|---|
| WES ← (this report) | $41.78 | 8.9% | 14.1× | ~1.30× | <3.0× | Hold |
| EPD (Enterprise Products) | ~$36 | 6.3% | 16× | >1.7× | ~3.5× | Buy |
| ET (Energy Transfer) | ~$18 | 7.8% | 12× | ~1.7× | ~4.0× | Buy |
| MPLX (MPLX LP) | ~$48 | 8.0% | 13× | ~1.5× | ~3.5× | Hold |
| AM (Antero Midstream) | ~$15 | 6.2% | 14× | ~1.5× | ~3.8× | Hold |
WES yield is attractive vs. peers. Coverage is the weakest in the peer group today but improving — the 2026 ramp to $4.84 DCF/unit (midpoint) should restore coverage to peer-comparable levels.
8. Distribution Analysis
| Annual Distribution | $3.72/unit ($0.93/qtr × 4) |
| 2026 Guidance | At least $3.70/unit — already delivered at $3.72 |
| Q1 2026 Rate | $0.930/unit (raised from $0.910; +2.2% sequential) |
| Fwd Yield at $41.78 | 8.9% |
| 4-Yr CAGR (2021–2025) | 29.0% (from COVID trough; not a sustainable baseline) |
| 1-Yr Growth | 4.0% |
| DCF Coverage (2026E) | ~1.28–1.37× — well above 1.0× floor |
| FCF Payout (2025) | $3.64 / $3.85 FCF/unit = 94.5% — high, but improving in 2026 |
| FCF Payout (2026E) | $3.72 / $4.84 DCF midpoint = ~76.9% — healthy |
| Streak | 4 consecutive years of increases (post-2020 COVID cut) |
| Sustainability | ✅ SAFE — DCF coverage growing; management building buffer intentionally |
Note: Reported EPS payout of 122% is irrelevant for MLPs. Always use DCF coverage. At the low end of 2026 DCF guidance ($4.59/unit), coverage is still 1.23× — adequate buffer.
9. Analyst Forecast
| Year | EPS Low | EPS Avg | EPS High | Revenue | Status |
|---|
| 2023 | — | $2.60 | — | $3.1B | Actual |
| 2024 | — | $4.02 | — | $3.6B | Actual |
| 2025 | — | $2.98 | — | $3.8B | Actual |
| 2026E | $2.80 | $3.32 | $4.08 | $4.1B | 13 analysts |
| 2027E | $3.03 | $3.71 | $4.41 | $4.4B | 12 analysts |
| Analyst / Firm | Rating | Price Target | Action | Date |
|---|
| Ned Baramov / Wells Fargo | Hold | $41 | Maintained ($39→$41) | Mar 13, 2026 |
| Jeremy Tonet / JP Morgan | Hold | $43 | Maintained ($44→$43) | Mar 12, 2026 |
| Selman Akyol / Stifel | Hold | $42 | Maintained ($43→$42) | Feb 20, 2026 |
| Elvira Scotto / RBC Capital | Hold | $42 | Maintained ($39→$42) | Nov 28, 2025 |
Earnings Surprise History
| Quarter | EPS Actual | EPS Estimate | Surprise | Notes |
|---|
| Q4 2025 | $0.47 | $0.86 | -45.4% | One-time: Aris G&A surge ($201M vs $76M PY) — not recurring |
| Q3 2025 | $0.87 | $0.89 | -2.4% | Small miss; Delaware Basin volume headwinds |
| Q2 2025 | $0.87 | $0.84 | +4.0% | Beat; processing volumes strong |
| Q1 2025 | $0.79 | $0.84 | -6.2% | Slight miss; weather-related volume pressure |
Q4 EPS miss was entirely acquisition-driven — DCF and adjusted EBITDA were records. EPS is not the right metric for WES.
10. Investment Thesis
🚀 Bull Case
- Pathfinder pipeline attracts third-party producers → volume diversification beyond OXY
- OXY returns to WES-serviced acreage as Delaware Basin gas/NGL prices recover
- Aris synergies deliver incremental EBITDA; water throughput +80% in 2026
- Coverage expands to 1.5×+ → distribution growth re-accelerates to 5%/yr
- Rate stability → MLP yield compression → unit re-rating toward $48–52
🔴 Bear Case
- OXY concentration: OXY owns ~49%; reallocating Delaware drilling away from WES-serviced acreage. Sustained = DCF headwind.
- Waha Hub nat gas pricing pressure persists H1 2026+
- Pathfinder stalls — no third-party commercial participation → capex with low returns
- DJ Basin throughput decline (mid-high single digits guided) extends into 2027
- Rate hikes → MLP yield widening → unit price compression
📊 My Take
WES offers a compelling 8.9% yield with improving DCF coverage and a management team explicitly building toward higher coverage ratios. The OXY sponsorship is the central tension: it provides extraordinary long-term revenue certainty via renegotiated fixed-fee contracts, while simultaneously concentrating near-term volume risk on a single producer that is actively reallocating drilling away from WES-serviced acreage. The Aris water infrastructure bet is strategically sound — produced water grows with production regardless of commodity price — but Pathfinder needs third-party participation to validate the thesis. At $41.78, WES trades essentially at analyst consensus ($41.71), with the risks already reflected. There is no margin of safety at current prices. The entry zone is $38–39 (Tier 1) and $35–36 (full conviction), where yield on cost reaches 9.5–10.4% and the discount to Base IV provides meaningful downside protection.
11. Recommendation
✅ Accumulate — $41.78 Current Price
| Base Intrinsic Value | $71.18 (+70.4% from current) |
| Bear / Base / Bull | $59.53 / $71.18 / $85.90 |
| Tier 1 — Starter Entry | $38–39 (~7–9% below current; yield 9.5%) |
| Tier 2 — Add Entry | $35–36 (Bear/Base midpoint; yield ~10.4%) |
| Tier 3 — Full Position | $33–34 (near Bear IV; maximum margin of safety; yield ~11%) |
| Suggested Position Size | ~$200K at full build (~2% portfolio); start with $75–100K at Tier 1 |
| Annual Income at Tier 1 | ~$18,900/yr at $39 entry (9.5% YoC) |
| Becomes a Sell If | Distribution cut announced OR OXY throughput decline accelerates beyond 2026 guidance |
| Analyst Consensus | Hold | avg PT $41.71 — essentially at current price |
12. Position Summary
WES is not currently held in the portfolio — this is a watchlist initiation report. WES would complement the existing EPD position (6,709 units), adding Permian Basin / OXY-anchored exposure vs. EPD's more diversified asset base. Combined MLP/midstream allocation at $200K WES + current EPD (~$247K) would total ~$447K (~4.5% of $10M portfolio) — within a reasonable midstream weighting.
Bore Family Office · Research generated by Lurch · Not investment advice.
