DCP Midstream Upgraded to Outperform at RBC Capital

RBC Capital upgraded DCP Midstream, LP (NYSE:DCP) to outperform from sector perform and increased their price target to $40 from $37, viewing the selloff (units down 26% since recent peak on 06/07/2022) as overdone given the company’s cash flow visibility.
The analysts noted that approximately 70% of the company’s 2022 earnings are fee based and the company has hedged 42% of its commodity price exposure leading to 83% fee-based and hedged earnings.
For 2023, the company has hedged 16% of its commodity price exposure. The company’s hedges provide downside protection while preserving the ability to capture some upside.
The analysts expects a rebound in commodity prices. They recently raised their 2022/2023 WTI price forecast by 7%/18%, Henry Hub gas price forecast by 13%/9% and Mont Belvieu NGL price forecast by 0%/18%. The analysts highlighted that the company estimates annual margin impact of $3 million for every $1/Bbl change in WTI prices, $2 million for every $0.10/MMBtu change in natural gas prices and $5 million for every $0.01/gallon change in NGL prices for 2022.

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