NuStar’s price-to-distributable cash flow
Until now, we’ve analyzed NuStar Energy’s (NS) operating performance, leverage position, and cash flow measures. In this article, we’ll perform a valuation analysis for NS based on its historical and forward multiples.
Currently, NS trades at a price-to-distributable cash flow of 10.5x. The partnership is trading below the ten-quarter historical average of 12.5x despite the recent rally. NuStar’s undervaluation relative to its own historical valuation might indicate a buying opportunity. At the same time, NuStar’s low valuation might be a reflection of its high leverage, the decline in throughput volumes, and the expected decline in distribution coverage. Peers Summit Midstream Partners (SMLP), Enable Midstream Partners (ENBL), and Cone Midstream Partners (CNNX) have also seen a decline in their valuations since the rout in energy prices.
NuStar’s EV-to-adjusted EBITDA multiple
NuStar Energy’s adjusted EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, using a trailing 12-month adjusted EBITDA, is 11.8x. Similar to price-to-DCF (distributable cash flow), the current EV-to-EBITDA is below the ten-quarter-average of 13.5x. The forward EV-to-EBITDA multiple, which is based on the next-12-month EBITDA estimate, is 11.7x.
However, the EV-to-EBITDA multiple can be misleading in understanding the unit valuation of limited partner units. This is because the entire EBITDA in the EV-to-EBITDA multiple calculation may not be available for limited partners. NuStar Energy has IDRs (incentive distribution rights) in its structure. Currently, it operates in the highest distribution tier, with a 50% split. This split means that its general partner, NuStar GP Holdings (NSH), gets 50% of the incremental distributions.