Morgan Stanley: Median One-Year Total Return Upside for Midstream Energy Stocks Reaches 19.9%
N.R. Finch
Morgan Stanley analyst Robert Kad argues in a June 9 report that midstream energy infrastructure stocks offer a median one-year total-return upside of 19.9%, plus a 4.7% dividend yield — the Middle East de-escalation selloff is a buying window, not an exit.
Oil prices are falling — why is Morgan Stanley bullish on midstream?
Iran tensions eased and the Strait of Hormuz reopened, triggering short-term selling pressure on energy stocks — oil is down, and the market is shooting first.
But Morgan Stanley sees a clear supply gap in global crude and refined products. Even if shipping resumes immediately, full trade-flow normalization won't arrive until late 2026 to early 2027.
This means → inventory rebuilding is a multi-year process; mid-cycle oil prices still have upside support, and the current selloff offers a better entry price.
What is "midstream," and how does the money get there?
Midstream infrastructure — pipelines, storage tanks, and processing plants sitting between the wellhead and the refinery — doesn't sell oil; it earns "toll fees" for moving and storing it.
In plain terms = upstream drills, downstream refines and sells, midstream is the infrastructure operator in between.
Morgan Stanley's view: when capital rotates into energy, oil-price-sensitive assets get bought first, but the direction also favors midstream — oil-linked midstream stocks stand to capture outsized upside.
Three top picks — what makes each one stand out?
Targa Resources (TRGP): target price $331, implying roughly 26% upside; balance-sheet repair now funds organic capex, with 40%–50% of operating cash flow earmarked for shareholder returns; quarterly dividend raised 25% in April to $1.25/share; up 40% year-to-date.
Oneok (OKE): target price $113, implying roughly 29% upside; benefits from improved drilling efficiency, flared-gas capture, DUC drawdowns, and rising gas-oil ratios in the Bakken; the 2024 Medallion acquisition and Enlink controlling stake open a new growth platform in the Permian Basin; dividend yield near 5%.
WaterBridge Infrastructure (WBI): target price $38, implying roughly 18% upside; highest EBITDA growth rate in Morgan Stanley's midstream coverage; high-return capital projects drive growth, and as the water-services business shifts toward a midstream valuation framework, further re-rating is possible; up 61% year-to-date.
What ties all three picks together?
The thesis is not an oil-price bet — it is dividend growth and capital-return capability.
This means → even if oil prices swing, as long as the pipes keep running and the "toll fees" keep flowing, cash generation stays relatively stable — that is midstream's defensive edge.
This reflects Morgan Stanley's deeper conviction: whether midstream infrastructure can sustain stable cash-flow generation through oil-price volatility is the key test of this entire thesis.
Content is for reference only, not financial advice.