Sunoco Logistics Partners (SXL) is currently trading at a price-to-distributable-cash-flow ratio of 9.2x. The partnership has been trading below its historical average of 11.7x for the past ten years, despite its YTD (year-to-date) gain.
Sunoco Logistics’ EV-to-adjusted-EBITDA (enterprise value to adjusted earnings before interest, tax, depreciation, and amortization) ratio on a trailing-12-month basis is 13.8x. Similar to its price-to-DCF (distributable cash flow) ratio, the company’s current EV-to-EBITDA is below the average of 14.8x over the past ten quarters. However, SXL is currently trading above the industry median EV-to-adjusted-EBITDA of 13.0x.
SXL’s forward EV-EBITDA multiple, which is based on a next-12-month EBITDA estimate, is 11.0x. This might indicate expectations of an increase in the partnership’s EBITDA in coming quarters.
However, the EV-to-EBITDA ratio can be misleading when trying to understand the unit valuation of limited partnership units, because the entire EBITDA in the EV-to-EBITDA ratio calculation may not be available to limited partners. Sunoco Logistics Partners has IDRs (incentive distribution rights) in its structure, which means that its general partner, Energy Transfer Partners (ETP), gets a higher share of incremental cash flows.
Forward distribution yield
Sunoco Logistics is currently trading at a forward distribution yield of 6.6%. The ratio is higher than the historical five-year average of 5.9%. 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.
SXL’s undervaluation relative to its own historical valuation might indicate a buying opportunity. However, the company’s current valuation might also reflect SXL’s weak earnings, high crude oil exposure, and declining throughput volumes in some areas.
In the next part, we’ll analyze Sunoco Logistics’ valuation compared to peers.