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What Does Crestwood Equity Partners’s Current Valuation Indicate?

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Crestwood Equity Partners’s market performance

Crestwood Equity Partners (CEQP) stock fell 2.3% following its 4Q16 earnings announcement. CEQP, which had gained 23.0% in 2016, had a weak start to 2017. CEQP has risen ~1.0% since the beginning of 2017.

Among CEQP’s peers, EnLink Midstream Partners (ENLK) and DCP Midstream LP (DPM) have gained 6.0% and 9.3%, respectively, in 2017. The Alerian MLP ETF (AMLP), which comprises 25 midstream energy MLPs, has gained 3.7% in 2017.

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Crestwood Equity Partners’s valuation

Crestwood Equity Partners’s EV-to-adjusted-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] ratio using a trailing 12-month adjusted EBITDA is 7.3x. The current EV-to-EBITDA is below the last ten quarters’ average of 14.0x. CEQP is currently trading below the industry median EV-to-adjusted-EBITDA of 13.0x.

Crestwood Equity Partners is currently trading at a price-to-distributable cash flow of 5.9x. The partnership’s price-to-distributable cash flow is significantly below its historical levels and its peers.

CEQP’s slight undervaluation relative to its own historical valuation could indicate a buying opportunity considering its presence in prolific shale plays. However, the current valuation could also reflect CEQP’s declining throughput volumes in some regions, contract expirations, weak 2017 earning guidance, flat distribution guidance, and an expected increase in leverage by the end of 2017.

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