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Investing.com -- Natural gas pipeline stocks have underperformed this year despite the broader energy sector’s positive outlook, according to a new Wells Fargo analysis.
While these stocks have gained 4.5% year-to-date, outpacing the Alerian Midstream Energy Index’s 0.3% rise, they’ve significantly trailed the 32.1% surge in AI-related stocks.
The disconnect appears puzzling given recent positive data points like hyperscaler capital expenditure increases and favorable PJM auction results. Wells Fargo analysts believe the natural gas investment thesis remains intact, but the stocks are experiencing a temporary pause due to valuation concerns, an unwinding of energy momentum, and a lack of near-term catalysts.
The second quarter earnings season brought few new project announcements, with analysts noting that larger project final investment decisions (FIDs) at 5-6x multiples are likely needed to drive future EBITDA growth. Such announcements could potentially reinvigorate investor interest in the second half of the year.
Here are the top natural gas pipeline stocks according to Wells Fargo:
Williams Companies (WMB) maintains a strong position in the sector with its extensive infrastructure network. Despite the broader slowdown in the sector, Williams continues to benefit from steady demand for natural gas transportation services.
In its second-quarter 2025 results, Williams Companies reported revenue that surpassed expectations, though its earnings per share slightly missed forecasts. Following the results, Wells Fargo raised its price target on the company.
DT Midstream (DTM) is a relatively newer pure-play natural gas pipeline company that has demonstrated resilience in the current market environment. DTM’s focused business model appears to be attracting investor interest despite the sector’s overall stagnation.
DT Midstream announced second-quarter 2025 earnings that beat analyst expectations for both earnings per share and revenue.
TC Energy (TRP) has significant U.S. operations and continues to be a major player in North American energy infrastructure despite the challenging market conditions facing the sector.
In a recent development, TC Energy confirmed it has begun collecting tolls from Mexico’s Comisión Federal de Electricidad for its Southeast Gateway pipeline.
Kinder Morgan (KMI) is one of the largest energy infrastructure companies in North America. Kinder Morgan remains a significant player in the natural gas transportation space, though it faces the same industry headwinds as its peers.
Kinder Morgan reported second-quarter 2025 earnings that exceeded market expectations, and Fitch Ratings upgraded the company’s long-term rating to ’BBB+’ on an improved leverage outlook.
Wells Fargo’s analysis suggests that the market typically rewards pipeline companies with a 0.25x increase in EV/EBITDA multiple (approximately 4% price gain) for every 1% increase in three-year EBITDA compound annual growth rate, after accounting for differences in asset quality.
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