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Williams Companies' Sluggish Performance Continued Last Week

PART:
1 2 3 4 5
Part 3
Williams Companies' Sluggish Performance Continued Last Week PART 3 OF 5

Does Williams Companies’ Valuation Mean a Buying Opportunity?

Williams Companies’ EV-to-adjusted EBITDA multiple

In the previous part of this series, we saw the technical indicators for Williams Companies (WMB). In this article, we’ll perform a valuation analysis for WMB based on its historical and forward multiples.

Does Williams Companies’ Valuation Mean a Buying Opportunity?

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Williams Companies’ EV-to-adjusted EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio using a trailing-12-month adjusted EBITDA is 12.4x. The current EV-to-adjusted EBITDA is below the last eight quarters’ average of 14.8x.

Williams Companies’ forward dividend yield

Williams Companies is currently trading at a forward dividend yield of 4.3%. The ratio is higher than the historical five-year average of 4.0%. The sudden spike in WMB’s dividend yield could be due to the recent dividend increase. A company’s forward dividend yield is calculated by dividing its estimated one-year future dividend per share by its market price per share.

Williams Companies’ relative valuation

WMB is currently trading below its peer average EV-to-adjusted EBITDA multiple of 13.2x. TransCanada Corporation (TRP) and Enterprise Product Partners (EPD) are trading at higher multiples than WMB. Moreover, WMB’s forward EV-to-EBITDA multiple of 12.2x is below the peer median of 13.2x. The forward EV-EBITDA multiple is based on the next 12 months’ EBITDA estimate.

WMB’s slight undervaluation relative to its own historical valuation and peers might indicate a buying opportunity, given its significant natural gas–focused growth opportunities and presence in the prolific shale plays. However, the current valuation might also reflect WMB’s high leverage and recent removal of IDRs (incentive distribution rights) from Williams Partners’ (WPZ) capital structure. However, the company is expected to benefit from simplified organizational structure in the long run.

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