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What Does NuStar’s Valuation Tell Us?

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Jan. 26 2017, Updated 7:36 a.m. ET

NuStar Energy’s market performance

NuStar Energy (NS), which had gained 24.2% in 2016, has had a good start in 2017 as well, having risen 6.6% YTD (year-to-date). By comparison, Buckeye Partners (BPL) and Sunoco Logistics Partners (SXL) have lost 2.7% and 0.9%, respectively, YTD.

Meanwhile, the Alerian MLP ETF (AMLP), which comprises of 25 midstream energy MLPs (master limited partnerships), has gained 0.5% YTD. But NuStar and its peers are still trading below their levels before the rout in energy prices.

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NuStar Energy’s valuation

NuStar Energy is currently trading at a price-to-distributable cash flow of 11.5x. The partnership is trading close to its ten-quarter historical average. NuStar Energy’s EV-to-adjusted EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio, using a trailing-12-month adjusted EBITDA, is 12.6x. The current EV-to-EBITDA is above the last-ten-quarter average of 12.2x.

NuStar’s forward EV-EBITDA multiple, which is based on next-12-month EBITDA estimate, is 11.6x. Notably, the company’s forward EV-to-EBITDA multiple is below the peer median multiple of 12.6x.

We should note, however, that the EV-to-EBITDA ratio can be misleading in an understanding of the unit valuation of limited partner units. This is because the entire EBITDA in the EV-to-EBITDA ratio calculation may not be available to limited partners.

NuStar Energy has IDRs (incentive distribution rights) in its structure, which means that its general partner, NuStar GP Holdings (NSH), gets a higher share of incremental cash flows.

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