MPLX trades at a higher yield
MPLX LP (MPLX) currently trades at a forward distribution yield of 4.9%. This is higher than its three-year average yield of 3.6%. The rise in MPLX’s yield since mid-2015 is in line with the broader midstream energy sector. Low commodity prices have pushed yields up for most of the companies in the energy sector.
The merger announcement with MarkWest Energy in July 2015 also pushed MPLX’s stock down. The forward distribution yield of a company is calculated by dividing its estimated one-year future distribution per unit by its market price per unit.
The Alerian MLP Index (AMZ), an index of the top midstream MLPs, currently trades at a yield of ~8.4%. The above graph compares MPLX’s distribution yields to its three-year average. MPLX forms ~2% of the Global X MLP and Energy Infrastructure ETF (MLPX), which invests in MLPs and energy infrastructure companies.
MPLX’s EV/EBITDA multiple
MPLX’s forward EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 11.4 is lower than its historical average of 19. The enterprise value of a company is roughly the market value of its debt and equity less its cash holdings. The EV/EBITDA ratio is neutral to capital structure, as it takes into account a company’s debt and equity. A lower ratio may indicate a possible undervaluation.
MPLX’s forward EV/EBITDA multiple is also lower than its trailing 12-month EV/EBITDA multiple of 19. This indicates the expectations of its EBITDA growth in the fourth quarter of 2015. MPLX is expected to report its 4Q15 earnings in the first week of February.
Plains All American Pipeline (PAA), Boardwalk Pipeline Partners (BWP), Enterprise Products Partners (EPD), Williams Partners (WPZ), and Enbridge Energy Partners (EEP) are other companies with midstream operations. In the next part, we’ll see how MPLX’s forward yield and EV/EBITDA multiple compare with its peers.
In the next part of this series, we’ll see how MPLX’s forward yield, as well as its EV/EBITDA multiple, compare with its peers.