DTM - DT Midstream raised from Sell rating at Citi after recent stock weakness

DT Midstream ( NYSE: DTM ) +0.8% in Thursday's trading as Citi upgraded shares to Neutral from Sell with a $54 price target, following their recent underperformance.

Citi's Spiro Dounis believes two factors drove DT Midstream's ( DTM ) lackluster performance: Natural gas fundamentals deteriorated, driving 2023 Henry Hub futures down more than 20% since year-end 2022, and the company's elevated capex budget , resulting in a 2023 cash deficit.

With both of the negative catalysts now behind the company, Dounis sees the risk-reward tradeoff as more balanced at current price levels.

The analyst forecasts a free cash flow yield of 1% in 2023 and a cash flow deficit after factoring in the dividend, but he sees the FCF outlook improving from 2024, ranging 6%-8% through 2027, although the yield would still screen low relative to peers.

DT Midstream's ( DTM ) elevated capex drives its peer-leading 6% compound annual growth rate, which explains and largely justifies the tighter FCF yield, Dounis said.

DT Midstream's ( DTM ) capex announcement overshadowed its 8% quarterly dividend increase .

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