Cash flow analysis
In fiscal 3Q15, large-cap midstream companies and MLPs generated less cash than they required. The average ratio of cash that midstream operators generated versus the cash they required was 0.62x in fiscal 3Q15. Meanwhile, the average ratio of cash that large-cap downstream companies and upstream companies generated versus the cash they required equaled 1.06x and 0.75x, respectively, in fiscal 3Q15.
Magellan Midstream Partners (MMP) managed to keep its ratios high at 1.18x. Also, Spectra Energy (SE) and Kinder Morgan (KMI) maintained ratios at relatively higher levels of 0.75x and 0.83x, respectively, in fiscal 3Q15. Spectra Energy has a weight of 1.7% in the Energy Select Sector SPDR Fund (XLE).
The graph above shows the ratios of cash generated to cash required for large-cap midstream companies in fiscal 3Q15. It also shows the companies’ price-to-cash flow per share.
In fiscal 3Q15, the price-to-cash flows per share for Plains All American Pipeline (PAA) and Williams Partners (WPZ) were 4x and 5x, respectively. Kinder Morgan and Spectra Energy Partners (SEP) were around 7.3x and 7.45x, respectively. The price-to-cash flow measures the price relative to its cash flow per share. A lower ratio usually indicates a higher cash flow on a relative basis.