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Williams Companies Outperformed AMLP Last Week: What’s Next?

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Part 3
Williams Companies Outperformed AMLP Last Week: What’s Next? PART 3 OF 5

Is Williams Companies Cheaper Compared to Its Peers?

Williams Companies’ EV-to-adjusted EBITDA multiple

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

Williams Companies’ EV-to-adjusted EBITDA1 ratio using a trailing-12-month adjusted EBITDA is 12.1x. The current EV-to-adjusted EBITDA is below the last eight quarters’ average of 14.8x.

Is Williams Companies Cheaper Compared to Its Peers?

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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 forward dividend yield of a company is calculated by dividing its estimated one-year future dividend per share by its market price per share.

Williams Companies’ relative valuation

Williams Companies (WMB) is currently trading below its peer average EV-to-adjusted EBITDA multiple of 13.3x. TransCanada Corporation (TRP) and Plains GP Holdings (PAGP) are trading at higher multiples than WMB. Moreover, WMB’s forward EV-to-EBITDA multiple of 11.7x is below the peer median of 13.3x. The forward EV-to-EBITDA multiple is based on the next-12-month EBITDA estimate.

WMB’s slight undervaluation relative to its own historical valuation and peers could indicate a buying opportunity considering its significant natural gas–focused growth opportunities and presence in the prolific shale plays. However, the current valuation could also reflect WMB’s 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. Moreover, the company is expected to benefit from the simplified organizational structure in the long run. For an update on Williams Partners’ (WPZ) expansion projects after 1Q17, please read Key Updates on Williams Partners’ Transco Projects after 1Q17.

  1. enterprise value to earnings before interest, tax, depreciation, and amortization
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