Why Williams Companies’ Valuation Has Been on the Rise

Until now, we’ve analyzed Williams Companies’ (WMB) operating performance, leverage position, and cash flow measures. In this article, we’ll perform a valuation analysis for WMB based on its historical and forward multiples.

Currently, WMB trades at an EV-to-EBITDA multiple of 19.5x, which is quite high compared to the ~9-year average of 13.0x. The valuation multiple has jumped from ~4.0x in 2008 to a range of 15.0x to 24.0x in the last couple of years. This jump is due to the multiple expansions resulting from the energy shale boom, recovery from the 2008-2009 financial crisis, and the Access Midstream acquisition. Midstream companies have invested heavily in energy infrastructure projects over the last few years. WMB’s net plant, property, and equipment has grown from $17.7 billion at the end of 2008 to $29.5 billion as of September 30, 2015.

However, WMB’s current multiple has come down compared to the EV-to-EBITDA average of 21.5x over the last 12 quarters. This could be attributed to less revenue growth versus expectations backed by capex growth. WMB’s asset turnover has fallen from 0.20x in fiscal 2014 to 0.15x at the end of the third quarter.

Energy Transfer Equity (ETP), EnLink Midstream Partners (ENLK), and Spectra Energy Partners (SEP) are among the midstream MLPs that have experienced a decline in their valuation over the last couple of quarters. WMB constitutes ~1.5% of the Vanguard Energy ETF (VDE).

Williams Companies’ forward EV-EBITDA multiple, which is based on the current fiscal quarter’s EBITDA estimates, is 13.1x. This indicates expectations of higher EBITDA for WMB in the fourth quarter of 2015. WMB’s fourth quarter EBITDA is expected to be driven by recent projects placed into service such as the Williams Partners’ (WPZ) Virginia Southside Expansion and recovery of shut-in production.