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Williams Companies Recovered after Falling Last Week

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1 2 3 4 5
Part 3
Williams Companies Recovered after Falling Last Week PART 3 OF 5

Williams Companies’ Valuation: A Buying Opportunity?

Williams Companies’ EV-to-adjusted EBITDA Multiple

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

Williams Companies’ Valuation: 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 12.8x. The current EV-to-adjusted EBITDA is below the average of 14.8x for the last eight quarters.

Forward dividend yield

Currently, Williams Companies is trading at a forward dividend yield of 4.2%. The ratio is higher compared to the historical five-year average of 4.0%. A company’s forward dividend yield is calculated by dividing its estimated one-year future dividend per share by its market price per share.

Relative valuation

Williams Companies is trading below its peer average EV-to-adjusted EBITDA multiple of 14.0x. TransCanada (TRP) and Plains GP Holdings (PAGP) are trading at higher multiples than Williams Companies. Also, Williams Companies’ forward EV-to-EBITDA multiple of 12.3x is below the peer median of 13.6x. The forward EV-EBITDA multiple is based on the EBITDA estimate for the next 12 months.

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

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