What Energy Transfer Equity’s Current Valuation Suggests
Price-to-distributable cash flow
In this article, we’ll analyze Energy Transfer Equity’s (ETE) current valuation based on historical and forward multiples. ETE was trading at a price-to-distributable cash flow of 18.3x as of September 27—slightly above the last ten-quarter average of 18.0x. ETE’s high price to distributable cash flow might reflect expected growth in the partnership’s distributable cash flow growth. This growth is expected to come from higher distribution income resulting from distribution growth at Energy Transfer Partners (ETP), the expiration of IDRs (incentive distribution rights) subsidies, and ETP’s recent equity and ATM (at the market) offerings.
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Energy Transfer Equity was trading at a distribution yield of 6.5% as of September 27, which is above the historical five-year average of 5.3%. At the same time, ETE’s peers ONEOK (OKE) and Williams Companies (WMB) were trading at 5.4% and 4.0%, respectively. Notably, ETE’s distribution yield is still lower than the Alerian MLP ETF (AMLP) at 10.1%.
Energy Transfer Equity was trading at a forward EV-to-EBITDA1 multiple of 11.7x as of September 27. This multiple is below the historical five-year, two-year, and one-year averages of 13.4x, 12.7x, and 13.4, respectively. Moreover, it’s below the average peer multiple of 12.8x.
In the next part of this series, we’ll look at recent analyst recommendation for Energy Transfer Equity.
- Enterprise value to earnings before interest, tax, depreciation, and amortization ↩