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Why Antero Midstream Stock Is Soaring Today

What happened

Shares of Antero Midstream (NYSE: AM) rallied nearly 10% by 11:15 a.m. EDT on Wednesday. Fueling the energy company's big move were its third-quarter results.

So what

Antero Midstream hauled in $170 million of distributable cash flow during the third quarter, which was an 8% year-over-year increase. Driving that growth was a 25% surge in gas-gathering volumes and a 71% jump in processing volumes. The company benefited from higher production from its parent, Antero Resources (NYSE: AR), as well as recently completed expansion projects.

Several pipelines with the sun shining brightly in the background.

Image source: Getty Images.

Antero Midstream also provided investors with its preliminary outlook for 2020. It noted that Antero Resources plans to spend between $1.15 billion and $1.2 billion to complete new wells next year, which will support 8% to 10% volume growth. Given that spending level by its parent, Antero Midstream anticipates investing $375 million to $425 million on building new midstream infrastructure in 2020, about 40% less than this year.

By reducing spending, Antero Midstream has more flexibility to return its growing cash flow to shareholders. One way it's doing that is through its recently authorized $300 million share repurchase program. The company noted that it expects to maintain its current dividend level -- which yields an eye-popping 15% -- but still return more cash to shareholders next year through the buyback.

Now what

Antero Midstream initially expected that it would grow its dividend at a fast pace for the next several years, fueled by the growing production of Antero Resources. However, with gas prices weakening, Antero is tapping the brakes. That's providing Antero Midstream with more financial flexibility, which it intends to use to buy back some of its absurdly cheap shares.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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