Investors have been hesitant to engage with midstream stocks amid ongoing tensions in the Middle East, but Morgan Stanley's analysis indicates that opportunities may arise.
Following President Trump's announcement of a memorandum of understanding between the U.S. and Iran, oil prices have fallen, with West Texas Intermediate crude futures dropping to $75.52 per barrel, the lowest since early March.
Analyst Robert Kad noted that while the de-escalation could lead to short-term selling pressure in energy equities, the global oil market is facing pronounced deficits, suggesting that full normalization of trade flows may not occur until late 2026 or early 2027. This scenario could lead to higher mid-cycle crude oil prices.
Kad's team projects a median one-year total return upside of 19.9% for midstream infrastructure stocks, alongside a 4.7% dividend yield. Among the highlighted stocks, Targa Resources is a top pick with a price target of $331, indicating a 26% upside, supported by a strong balance sheet and increased dividends.
Oneok is also rated overweight with a price target of $113, reflecting a 29% upside, bolstered by strategic acquisitions and growth potential in the Permian Basin. WaterBridge Infrastructure, with a price target of $38, suggests an 18% upside and is noted for its high EBITDA growth potential.
Overall, Morgan Stanley's insights point to a favorable outlook for select midstream stocks, particularly as they navigate current market conditions