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On Thursday, Citi upgraded shares of DT Midstream (NYSE:DTM) from Neutral to Buy, setting a new price target of $115, up from the previous $90. The upgrade follows DT Midstream's announcement of a $1.2 billion acquisition of three FERC-regulated pipelines, which is expected to significantly enhance the company's profile.
According to Citi, this strategic move positions DT Midstream for growth, increasing the Pipeline segment to 70% of the business. This change not only distinguishes DT Midstream from its natural gas peers but also increases its market capitalization to over $10 billion. This growth in market cap is anticipated to draw a broader range of investors, including those from international markets.
The financial implications of the acquisition are also positive, with an approximate 4% accretion to distributable cash flow per share (DCF/sh) and around an 8% accretion to earnings before interest, taxes, depreciation, and amortization per share (EBITDA/sh). Citi's analysis suggests that the acquisition will bolster DT Midstream's position in the market, supporting its top-quartile dividend growth rate.
Furthermore, Citi sees the recent acquisition as a potential model for future deals that could continue to expand DT Midstream's size and close the valuation gap with its peers. Despite the company's growth, DT Midstream still trades at a roughly 0.5x discount to peers based on the 2026 EBITDA multiple of 11.5x. Citi views this as an attractive value opportunity for investors.
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