NEW YORK (TheStreet) -- EQT MidstreamPartners (EQM) - Get EQM Midstream Partners LP Report , a master limited partnership created by EQT Corporation (EQT) - Get EQT Corporation Report , is positioning to post the highest distribution growth rate as compared to other gathering and processing MLPs covered by Goldman Sachs, thanks to organic growth and dropdown of assets from its parent, said Goldman Sachs reports prepared by analysts, including Jerren Holder.
The partnership's units have dropped by 12.8% since the beginning of September, which, Holder said, is due to profit taking by some investors and reallocation of funds by others, rather than any negative news. EQT Midstream will report earnings on Thursday.
EQT Midstream owns and operates more than 10,000 miles of natural gas gathering and transmission pipelines in the prolific Appalachian Basin, located in parts of New York, Pennsylvania, West Virginia and Ohio. The region is also home to Marcellus and Utica Shales. The former is the leading shale gas producing basin of the U.S. accounting for 40% of the nation's total shale gas production while the latter is one of the fastest growing natural gas production areas in the U.S., according to the U.S. Energy Information Administration.
EQT Midstream Partners provides its services to third parties as well as its parent which has around 580,000 acres with 8.3 trillion cubic feet equivalents of proven reserves at Marcellus, making it the leading player in the region, ahead of its peers Chesapeake Energy (CHK) - Get Chesapeake Energy Corporation Report and Cabot Oil & Gas (COG) - Get Cabot Oil & Gas Corporation Report .
Holder said that the Marcellus-focused EQT Midstream "is a low-risk, high growth" company that has minimum exposure to commodity price and volume risk as it largely operates through long-term contracts and is "exposed to growing volumes on its base regional pipelines."
The increasing volumes are coming from ever increasing output from Marcellus and Utica. Over the last couple of years, gas production has climbed from 2 billion to 15 billion cubic feet a day at Marcellus from 2010 to mid-2014 and from just 155 million to 1.3 billion cubic feet a day at Utica from early 2012 to September this year. Moreover, production is expected to climb by 50% from the two regions through 2020, EQT Midstream said in August presentation, which will translate into ample growth opportunities for the midstream company.
To capitalize on this, EQT Midstream is making investments in its transmission capacity and pipeline network to connect Marcellus and Utica's production to gas markets. This "strong organic growth spending" will be another major factor that will drive EQT Midstream's growth, Holder said.
Currently, the leading project in EQT Midstream's pipeline is a $300 million 36-mile pipeline extension that will connect West Virginia with Ohio, giving Marcellus producers access to refiners in the U.S. Gulf Coast and Midwest. The project is slated to come online by mid-2016 and the company has already contracted around 65% of its capacity. Besides, EQT Midstream is also working to increase its transmission capacity by five-folds for the five years ending 2014.
And it's not just about organic growth. EQT Midstream was created by carving out midstream assets such as gas pipelines and gathering systems from EQT Corp., and the parent still holds "a large inventory" of such assets, Holder said. EQT Corp has transferred two major assets to its subsidiary in 2013 and 2014 and the process is expected to continue in the future, allowing EQT Midstream to significantly grow its asset base.
Holder rates EQT Midstream a buy with a 12-month price target of $114. Despite the recent pullback, the stock has climbed 28% this year to $87 on Friday.
EQT Midstream's spokesperson did not respond to messages from TheStreet requesting comment.
At the time of publication, the author held no positions in any of the stocks mentioned.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
TheStreet Ratings team rates EQT MIDSTREAM PARTNERS LP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate EQT MIDSTREAM PARTNERS LP (EQM) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, compelling growth in net income, good cash flow from operations and expanding profit margins. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."
You can view the full analysis from the report here: EQM Ratings Report