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Shell Midstream Trades at a Lower Distribution Yield than Its Peers

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Dec. 4 2020, Updated 10:53 a.m. ET

Shell Midstream’s forward distribution yield

As we saw in the previous part, Shell Midstream Partners (SHLX) is trading at a forward distribution yield of about 3%. In comparison, Plains All American Pipeline (PAA), Magellan Midstream Partners (MMP), and Sunoco Logistics (SXL) are trading at forward yields of 12.9%, 4.9%, and 8.4%, respectively. Plains All American Pipeline forms ~2.7% of the First Trust North American Energy Infrastructure Fund (EMLP).

So, Shell Midstream Partners’ forward yield is nearly 5 percentage points lower than the average for the selected peers. Shell Midstream Partners’ high expected distribution growth, strong sponsor support, and low commodity price exposure likely contributed to its lower yield.

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The above graph compares the forward yields of Shell Midstream Partners and its peers relative to the expected distribution growth. As the above graph shows, Shell Midstream Partners is expected to have a compound distribution growth of 30% over the next two years. In comparison, Enterprise Products Partners (EPD), Sunoco Logistics, and Magellan Midstream Partners have expected distribution growths of 5%, 12%, and 9%, respectively. Plains All American Pipeline is expected to have flat distributions over the same period.

Valuation multiple: Peer comparison

Shell Midstream is trading at a trailing 12-month EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 27.3. In comparison, Plains All American Pipeline, Magellan Midstream Partners, and Sunoco Logistics are trading at EV-to-EBITDA multiples of 11.8, 16.7, and 11.5, respectively. Shell Midstream Partners’ premium valuation is likely due to its lower risk and superior return metrics.

As for the forward multiples, Shell Midstream is trading at a forward EV-to-EBITDA of 21.4. In comparison, Plains All American Pipeline, Magellan Midstream Partners, and Sunoco Logistics are trading at forward multiples of 9.1, 16.1, and 9.4, respectively.

In the next part of this series, we’ll analyze the key factors that could impact Shell Midstream Partners’ stock price in the long run.

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