How Energy Transfer Partners’ Valuation Stacks Up with Peers
ETP’s forward EV-to-EBITDA multiple
The EV (enterprise value)-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple is an important metric used in valuing MLPs like Energy Transfer Partners. The EV-to-EBITDA ratio is capital structure–neutral, as it considers both a company’s debt and equity. The forward EV-to-EBITDA ratios based on the current fiscal year’s EBITDA estimates for Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), Williams Partners (WPZ), and Magellan Midstream Partners (MMP) are 13.6, 8.1, 12.4, and 13.8, respectively.
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So, ETP looks undervalued relative to peers, based on its forward EV-to-EBITDA. ETP’s multiple is also lower compared to its own five-year average multiple.
Notably, out of the four MLPs, only ETP has incentive distribution rights in its structure. The forward EV-to-EBITDA can be misleading when trying to understand LP (limited partner) unit valuation, as the entire EBITDA in the ratio calculation may not be available to LPs.
The above graph compares the forward EV-to-EBITDA ratios for the four MLPs that we’re discussing.
In comparison, Magellan Midstream Partners has the highest EV-to-EBITDA multiple among peers under consideration. Notably, MMP’s forward multiple is lower compared to its own five-year average multiple. The MLP has historically traded at a premium compared to peers likely due to its stable cash flows, conservative leverage, and consistent distribution growth.
Like MMP, Enterprise Products Partners is also trading at a higher multiple compared to peers. Again, it has historically traded at a premium valuation due to its superior risk-return metrics.
Williams Partners’ forward EV-to-EBITDA multiple is higher than its five-year average, which may indicate possible overvaluation. WPZ’s multiple is, however, lower than EPD and MMP.
Of the four MLPs, Energy Transfer Partners is currently trading at the highest yield of ~12%. At the same time, EPD and MMP are trading at attractive yields of ~6.7% and 5.4%, respectively. WPZ is trading at a yield of ~6.4%.