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Where Does Western Gas Stand Next to Peers?

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Western Gas’s enterprise value

Western Gas Partners (WES) has an enterprise value of $12.3 billion—the highest among select peers, topped only by EQT Midstream Partners (EQM). The enterprise value—approximately equal to market equity value plus the net debt (debt minus cash)—is an important metric in the valuation of an entire business. Equity value alone only gives the value to equity holders.
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Forward EV-to-EBITDA multiple

WES’s forward EV-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple of 10.6x is above the group average of 10.3x. Antero Midstream Partners (AM) has the highest forward EV-to-EBITDA of 12.5x.

For an in-depth analysis of AM’s recent financial and market performance, check out Market Realist’s series Why Antero Midstream Partners Is Looking Attractive Lately.

Profitability margin

The partnership has the highest gross margin among the select peers. However, WES still has lower operating margin than Antero Midstream and EQT Midstream. This could be mainly attributed to WES’s higher interest expense, corresponding to its higher outstanding debt.

Distribution yield

Western Gas’s distribution yield of 6.0% is higher than the select peer group average of 5.6%. This might reflect Western Gas’s slightly higher leverage and lower distribution growth targets, as compared to Antero Midstream Partners AM, EQT Midstream Partners, and Rice Midstream Partners (RMP). Remember, a high distribution yield likely indicates high riskiness and the high cost of equity capital.

In the next part, we’ll analyze Western Gas’s exposure to commodity prices.

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