Tellurian vs. Western Midstream Partners: Which Natural Gas Stock is a Better Buy?

Western Midstream Partners, LP (WES) acquires, owns, develops, and operates midstream assets primarily in the United States. The Woodlands, Tex.-based concern engages in gathering, compressing, treating, processing, and transporting natural gas. In comparison, Houston, Tex.-based Tellurian Inc. (TELL) is in the natural gas business worldwide. The company is developing a portfolio of natural gas production, liquefied natural gas marketing, and infrastructure assets.

European natural gas prices dipped Wednesday on signs that Russia may increase supplies. However, considering the severe supply and demand mismatch, prices are expected to remain high. In addition, Hurricane Ida, which knocked offline the vast majority of the Gulf of Mexico's oil and gas production, also contributed to the rise in natural gas prices. Furthermore, Bank of America said Brent crude oil, which drives the price of gasoline, could reach as much as $120 per barrel by the middle of next year. And according to the Energy Information Administration, U.S. households that rely on natural gas for heating will spend an average of $746 on heating their homes this winter, up 30% from last winter, which is the highest level since the winter of 2005-2006. So, both WES and TELL should benefit.

TELL’s shares have gained 10.3% in price over the past month, while WES has returned 1.1%. Also, TELL’s 78.3% gains over the past six months are significantly higher than WES’ 5.6% returns. Moreover, TELL is the clear winner with 202.3% gains versus WES’ 62% returns in terms of year-to-date performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

On November 9, 2021, Michael Ure, WES’ President, and CEO said, "Due to our outperformance this quarter, we now expect to finish the year above the high end of our 2021 Adjusted EBITDA range of $1.825 to $1.925 billion. Furthermore, we expect to be below the high end of our 2021 capital expenditure range of $275 million to $375 million."

TELL completed sales for the first two plants from Driftwood LNG’s capacity  with the signing of three million tonnes per annum in sale and purchase agreements with Shell and raised approximately $116 million in a public stock offering in the third quarter of 2021. After the quarter ended, Tellurian also transferred its common stock listing from the Nasdaq Capital Market to the NYSE American.

Recent Financial Results

WES’ revenues increased 12.5% year-over-year to $763.84 million for its fiscal third quarter, ended September 30, 2021. The company’s operating income grew 10.4% year-over-year to $383.27 million, while its net income came in at $263.64 million representing a 3.7% year-over-year increase. Also, its EPS was  $0.61, up 10.9% year-over-year.

TELL’s natural gas sales increased 115% year-over-year to $15.64 million for its fiscal third quarter, ended September 30, 2021. However, the company’s loss from operations was  $14.52 million compared to $14.98 million in the previous year's quarter. In comparison, its net loss was  $15.93 million, versus $29.47 million in the prior-year quarter. Also, its loss per share came in at $0.04 compared to $0.10 in the year-ago period.

Past and Expected Financial Performance

WES’ revenue and total assets have grown at CAGRs of 7.8% and 8.1%, respectively, over the past three years. Analysts expect WES’ revenue to increase 16.1% for the quarter ending December 31, 2021, and 6.4% in its fiscal year 2022. The company’s EPS is expected to grow 43.2% for the quarter ending March 31, 2022, and 92.4% in its fiscal year 2021.

In comparison,  TELL’s revenue and total assets have grown at CAGRs of 61.5% and 4.8%, respectively, over the past three years. The company’s revenue is expected to increase 95.4% for the quarter ending December 31, 2021, and 69.1% in fiscal 2022. Its EPS is expected to climb 62.5% for the quarter ending March 31, 2022, and 69.6% in its fiscal 2021.

Profitability

WES’ $2.81 billion trailing-12-month revenue is significantly higher than TELL’s $58.32 million. It is  also more profitable, with gross profit  and net income margins of 69.23% and 32.67%, respectively, compared to TELL’s negative returns.

Furthermore, WES’ 32.75%, 6.48%, and 7.43% respective ROE, ROA, and ROTC compare with TELL’s negative values.

Valuation

In terms of trailing-12-month P/S, TELL is currently trading at 24.60x, which is 645.5% higher than WES’ 3.30x. Moreover, TELL’s 28.67x trailing-12-month EV/S  is 419.4% higher than WES’ 5.52x.

So, WES is the more affordable stock.

POWR Ratings

WES has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast,  TELL has an overall F rating, which translates to a Strong Sell. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

WES has a C grade for Sentiment, which is consistent with analysts’ expectations that its EPS and revenue will increase in the coming months. In comparison,  TELL has an F grade for Sentiment, which is in sync with analysts’ expectations that its EPS will remain negative in its fiscal years 2021 and 2022.

Moreover, WES has a grade of B for Quality. This is justified given WES' 33.37% trailing-12-month net income margin, which is 1,488.4% higher than the 2.10% industry average. In comparison,  TELL has a Quality grade of D, in sync with its negative trailing-12-month net income margin, compared to the 2.10% industry average.

Of the 37 stocks in the A-rated MLPs - Oil & Gas industry, WES is ranked #9. However, TELL is ranked #84 of 85 stocks in the B-rated Energy - Oil & Gas industry.

Beyond what I have stated above, we have also rated the stocks for Growth, Stability, Value, and Momentum. Click here to view all the WES ratings. Also, get all the TELL ratings here.

The Winner

Because the natural gas supply crunch remains unresolved and demand is expected to rise further, natural gas prices are expected to remain high in the coming winter season. And while both WES and TELL are expected to benefit, we think it is better to bet on WES now because of its lower valuation, higher profit margin, and better growth prospects.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the MLPs - Oil & Gas industry here. Also, click here to access all the top-rated stocks in the Energy - Oil & Gas industry.

WES shares were unchanged in after-hours trading Friday. Year-to-date, WES has gained 72.46%, versus a 26.20% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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