WMB’s Trading below Historical Levels: Reading the Clues


Dec. 4 2020, Updated 10:53 a.m. ET

Williams Companies’ EV-to-adjusted EBITDA multiple

In the previous part of this series, we investigated the technical indicators for Williams Companies (WMB). In this part, we’ll perform a valuation analysis for WMB based on its historical and forward multiples.

Williams Companies’ EV-to- adjusted EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio using a trailing-12-month adjusted EBITDA is 12.4x. Its current EV-to-adjusted-EBITDA is below the past-eight-quarter average of 14.8x.

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Forward dividend yield

The forward dividend yield of a company is calculated by dividing its estimated one-year future dividend per share by its market price per share.

Williams Companies is currently trading at a forward dividend yield of 4.3%. This ratio is higher than its historical five-year average of 4.0%.

Relative valuation

The forward EV-to-EBITDA multiple is based on next twelve month EBITDA estimate. WMB is currently trading below its peer average EV-to-adjusted EBITDA multiple of 13.6x, but TransCanada (TRP) and Plains GP Holdings (PAGP) are trading at higher multiples than WMB. WMB’s forward EV-to-EBITDA multiple of 12.2x is below the peer median of 13.2x.

WMB’s slight undervaluation relative to its own historical valuation and peers might indicate a buying opportunity, considering its significant natural gas growth opportunities and its presence in the most prolific shale plays.

However, WMB’s current valuation might also reflect its high leverage and the recent removal of IDRs (incentive distribution rights) from Williams Partners’ (WPZ) capital structure. Still, the company is expected to benefit from simplified organizational structure in the long run.


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