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Comparing Royalty Interest Owner MLPs: VNOM and BSM

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Part 8
Comparing Royalty Interest Owner MLPs: VNOM and BSM PART 8 OF 11

What VNOM’s and BSM’s Current Valuations Tell Us

Forward EV-to-EBITDA

Viper Energy Partners (VNOM) was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 12.9x as of October 3. By comparison, Black Stone Mineral (BSM) was trading at a multiple of 12.7x.

VNOM’s current forward EV-to-EBITDA multiple is significantly below its historical average of 17.0, while BSM’s current multiple is slightly above its historical average of 12.6x.

What VNOM’s and BSM’s Current Valuations Tell Us

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Distribution yields

Viper Energy Partners’ and Black Stone Minerals’ distribution yields of 7.1% and 7.2%, respectively, are higher than their historical averages of 5.4% and 7.0%, respectively. Notably, their distributions are lower that of the Alerian MLP ETF (AMLP) (7.8%) and higher than that of the Energy Select Sector SPDR (XLE) (5.0%).

What do these current valuations tell us?

Both metrics indicate that VNOM is trading at a discount to its historical valuation, and this could indicate a buying opportunity for some investors, given the stock’s strong distribution growth, low leverage, the strong presence in the prolific Permian Basin, and the strong support from its sponsor, Diamondback Energy (FANG).

At the same time, BSM is trading roughly on par with its historical valuation. Investors will likely look closely into its drilling activity in the Haynesville and Bossier Shale plays, where BSM has maximum exposure when considering new positions in the stock.

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