The mid-tier energy sector in US stocks is expected to see a divergent market performance! Morgan Stanley adjusts multiple stock ratings: overall trending upwards but only a few will emerge as winners.

Morgan Stanley adjusted the ratings of several midstream energy infrastructure companies on Wednesday. The bank downgraded the rating of TC Energy (TRP.US) to "hold" and downgraded the rating of Hess Midstream LP (HESM.US) to "sell." At the same time, the bank upgraded the rating of Western Midstream (WES.US) to "hold." Morgan Stanley stated that, based on the intrinsic fair value calculated from distributable cash flow, most of the midstream energy infrastructure companies it covers still have room for upward movement, but excess returns are expected to be concentrated on a few companies with growth rates higher than the industry average. For TC Energy, Morgan Stanley analyst Robert Kad stated that the downgrade was primarily due to the stock's recent strong performance, driven by factors such as successful project announcements, market attention to its growth potential at the Bruce Power nuclear facility, and its defensive attributes similar to utility companies in the context of commodity market volatility. The analyst stated that although future progress in commercializing natural gas infrastructure projects and potential monetization of TC Energy's Mexican natural gas pipeline assets may bring further benefits, most of these potential gains are already reflected in the current valuation. For Hess Midstream, Morgan Stanley downgraded its rating to the equivalent of "sell." The analyst pointed out that the company's long-term growth prospects and lack of clarity on strategic direction from major shareholders may limit its future upside. The analyst stated that, after Chevron Corporation (CVX.US) completes its acquisition of Hess, the likelihood of Chevron Corporation further acquiring Hess Midstream is now very low. In addition, there is uncertainty about Chevron Corporation's future plans for Hess Midstream, and this ongoing ambiguity may make it difficult for many investors to provide a logical basis for their investment decisions. Hess Midstream's main source of revenue is providing crude oil, natural gas, and water midstream services for Chevron Corporation in the Bakken and Three Forks shale formations in North Dakota. With Chevron Corporation reducing drilling activity in the region, Hess Midstream expects oil transport volumes to remain relatively stable from 2026 to 2028, with significant growth slowing. Furthermore, Chevron Corporation holds a significant stake in Hess Midstream, providing stable cash flow support and credit backing. Additionally, Morgan Stanley upgraded the rating of Western Midstream from "sell" to "hold." The analyst stated that the company completed strategic adjustments through recent acquisitions, enhancing visibility for future growth over the coming years. Key water treatment assets in the Permian Basin will be crucial for growth. The company also reduced natural gas production in the Delaware Basin. As natural gas export pipelines in the region are expected to come online in the second half of this year, the positive effects of these strategic adjustments are expected to gradually materialize.