HESM heads into mid-June with a notable analyst-driven tension: a fresh Morgan Stanley downgrade to Underweight arrived just as short sellers were cutting their exposure at the fastest pace in months.
The Street signal that matters most this week came from Morgan Stanley, which on June 10 moved HESM to Underweight — keeping its $38 price target unchanged while stepping down from Equal-Weight. That follows the same analyst cutting the target from $42 to $38 back in May. The direction of travel is unmistakably bearish from one of the market's bellwether voices. Goldman Sachs had already shifted to Sell in April with a $32 target — well below the current $38.58 print — though that target looks aggressive relative to where the stock has held. The broader consensus is cautious: five analysts carry Hold ratings, two have Sell, and no bulls are on record. The mean target cluster in the high $30s offers essentially no upside from current levels, consistent with a Street view that the stock is fairly to slightly richly priced.
What makes the Morgan Stanley timing awkward is that short sellers appear to be drawing the opposite conclusion. Short interest dropped sharply — 14.5% in a single session on June 9, and 16.5% on the week — bringing the short position down to 5.5% of the free float from roughly 6.5%. That's a meaningful unwind over a short period. Covering, not adding, is the current short-side posture. Borrow conditions reinforce the view that there's no urgency among bears: cost to borrow is running just under 0.43%, a low reading that eased further over the week. Availability remains very comfortable at around 611% of short interest — lenders have far more shares to place than are currently borrowed. The ORTEX short score has also fallen from just above 50 to 46 over the past week, reflecting the reduced short pressure.
Options positioning leans constructive rather than cautious. The put/call ratio is 0.31, modestly below its 20-day average of 0.33, sitting closer to the 52-week low of 0.18 than the high of 0.79. That's a market leaning into calls, not hedging with puts — a gentle but consistent tilt toward upside participation. Taken together, the positioning picture is notably at odds with the analyst tone: shorts are retreating and options traders are relaxed even as the Street turns more negative.
On valuation, HESM trades at roughly 13.3x trailing earnings and 6.8x EV/EBITDA. The EV/EBITDA multiple has drifted lower over the past 30 days, a modest compression in line with the subdued throughput backdrop flagged in the May earnings note — Q1 distributable cash flow came in at $87 million, down 8% year-on-year. The dividend score ranks at the top of the universe (100th percentile), which is the stock's clearest fundamental anchor; the EV/EBIT factor also ranks in the 74th percentile, suggesting the enterprise valuation is not stretched on that metric. Momentum and forward earnings estimates are the weakest pillars — the 12-month forward EPS growth rank is just 15th percentile, and earnings momentum over 90 days is similarly subdued.
Institutional ownership is broadly stable. ALPS Advisors holds roughly 24% of shares, a dominant position typical for an MLP-focused ETF complex. Harvest Fund Advisors added over four million shares in Q1, becoming the second-largest holder. BNY Mellon's ETF arm added nearly 900,000 shares into June 1. The ownership base is largely passive and income-oriented — not a crowd likely to rotate quickly on a single analyst downgrade.
The next earnings print is scheduled for July 29. With the Morgan Stanley downgrade now on record at a target essentially at current prices, and short sellers actively cutting, the question heading into that report is whether production headwinds at parent Hess have stabilised enough to defend the distribution — or whether cash flow trends give the bears fresh material to work with.
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