Lowering Equitrans’ Fair Value Estimate Due to Cloudy MVP Prospects

After reassessing Equitrans’ ETRN fourth-quarter results and our scenario analysis around the viability of the Mountain Valley Pipeline, or MVP, we are lowering our fair value estimate to $10.80 per share from $14. Our narrow moat rating is unchanged. We’ve now moved out our base-case expectation for the MVP entering service until late 2024 with material contributions in 2025 and assumed costs of $7 billion compared with current management expectations of a late 2023 start and costs of $6.6 billion. Broadly, we consider Equitrans to be a high-risk stock, but the current stock prices imply the MVP is already dead, and it is not assigning any probability to the likelihood that MVP can move forward.

We continue to model a 50/50 weighting for our fair value. Our first scenario assumes the MVP enters service and the stock is worth $15 per share, implying a 9 times 2025 EBITDA multiple. Similarly, our MVP cancellation scenario places the fair value at $6.50 a share, reflecting a 9 times EBITDA multiple on steady-state EBITDA of $1.1 billion.

Assuming the MVP entered service, our prior upside case of $17 per share is now $15, factoring in the higher costs and the delayed receipt of cash flows. Higher interest costs also had an impact, given the incremental $350 million in MVP capital expenditures due to delays is debt funded. After including the same factors, our previous MVP cancellation scenario of $10 per share is now $6.50. While our prior downside forecast of $10 implied substantial upside even in the case of a MVP cancellation, we no longer think that’s the case. Still, with the market assuming the MVP is already canceled, we consider the scenario to be more of a limited downside with potential material upside.