Is This the Right Time for Buckeye Partners?
Buckeye Partners’ price-to-distributable cash
So far in this series, we’ve looked at Buckeye Partners’ (BPL) recent market and operating performance and the impact of two hurricanes on its operations. We’ve also looked at its cash flow measures and balance sheet position. In this part, we’ll analyze BPL’s current valuation based on its forward and historical multiples. Let’s start with its price-to-distributable cash flows.
BPL was trading at a price-to-distributable cash flow of 10.9x as of September 7, 2017, which is below the last ten-quarter average of 13.8x.
Interested in BPL? Don't miss the next report.
Receive e-mail alerts for new research on BPL
Buckeye Partners’ EV-to- EBITDA multiple
BPL’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, which is based on the next 12-month EBITDA estimate, was 11.3x as of September 7, 2017. That’s below the last five-year average of 13.6x. It’s trading below the peer median multiple of 12.4x.
Buckeye Partners’ distribution yield
Buckeye Partners was trading at a distribution yield of 9.0% as of September 7, 2017. The ratio is above the historical five-year average of 6.8%. NuStar Energy (NS), Enbridge Energy Partners (EEP), and Magellan Midstream Partners (MMP) are trading at yields of 10.8%, 9.1%, and 5.2%, respectively. BPL’s distribution yield is higher than the SPDR S&P 500 ETF (SPY) at 1.9% and the Alerian MLP ETF (AMLP) at 10.1%.
All three metrics indicate that Buckeye Partners is trading at a significant discount to its historical valuation. The current valuation might indicate a buying opportunity considering its strong expansion plans, robust distribution growth, and low cost of equity due to the removal of IDRs (incentive distribution right) from its capital structure. At the same time, its low valuation might reflect its high commodity price exposure, low distribution coverage, weak Eagle Ford throughput volumes, expiration of certain long-term contracts, and the negative impact of the recent hurricanes. Some investors may choose to wait for the situation to smooth out before taking a fresh position in the stock.