Stifel Highlights Midstream Energy Stocks Poised to Benefit From Surging Power Demand

Stifel analysts have adopted a constructive view on the U.S. midstream energy sector, citing a powerful combination of surging power demand and improved financial discipline among operators. The firm believes the sector, which has seen its S&P 500 representation fall from 12% in 2011 to roughly 3% today, has an opportunity for a resurgence.

Data Centers Fueling Natural Gas Demand

A primary catalyst for the sector is the significant growth in power consumption, largely driven by the expansion of data centers. Stifel's note highlights that over 370 gigawatts (GW) of announced data center projects are in the pipeline in the United States, with approximately 189 GW already linked to natural gas-fired power capacity.

This trend is expected to support an attractive 3% compound annual growth rate (CAGR) for natural gas demand through 2030. The analysts also noted that the sector benefits from a more favorable regulatory environment, with faster permitting rules and merger review times from the Federal Trade Commission.

A Shift to Financial Discipline

Beyond the demand story, Stifel emphasized the midstream sector's improved capital management. Companies have lowered reinvestment rates to approximately 40-50% of cash flow, dedicating the remainder to shareholder returns. This discipline is expected to support an average 7% return of capital yield in 2027.

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Furthermore, balance sheets have strengthened considerably. Stifel estimates that leverage across its coverage universe will fall to an average of 0.4x by the end of 2027. This financial prudence contrasts with the sector's higher capital intensity in previous cycles.

Analyst Selections

Stifel identified several companies poised to capitalize on these trends:

• Energy Transfer (ET): Noted as an undervalued and diversified operator well-positioned to benefit from power-related natural gas demand, Permian basin activity, and global NGL exports.
• Plains All American Pipeline (PAA): A pure-play on crude oil infrastructure, leading Permian takeaway capacity with a low capital-intensive portfolio. Stifel sees the company generating significant free cash flow and continuing to raise distributions.
• Western Midstream (WES): Highlighted for its diversified assets, fee-based cash flows, and focus on distribution growth, all while trading at a discount to its peers.
• Enterprise Products (EPD): While recognized for its expansive, integrated platform and strong balance sheet, Stifel views the company as fairly valued, suggesting its growth prospects are largely reflected in its current stock price.