ETE, EPD, KMI, and WMB: A Leverage Comparison after 1Q17



ETE’s debt-to-EBITDA ratio

One of the most common metrics used in analyzing a company’s leverage is its net debt-to-EBITDA[1. earnings before interest, tax, depreciation, and amortization] ratio. The ratio is calculated by dividing the net debt of a company by its EBITDA. A lower ratio indicates lower risk.

Of the four companies we’re analyzing—Enterprise Products Partners (EPD), Williams Companies (WMB), Energy Transfer Equity (ETE), and Kinder Morgan (KMI)—Energy Transfer Equity has the highest net debt-to-EBITDA ratio.

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Stable or declining EBITDAs of companies due to the challenging energy commodity price environment, combined with rising debt levels, has resulted in a general rise in their debt-to-EBITDA ratios in the last couple of years. Constrained EBITDA growth forced companies to look at other ways to reduce leverage meaningfully.

According to analyst-adjusted numbers, Energy Transfer Equity’s net debt-to-EBITDA currently stands at 7.8x. In our view, Energy Transfer Partners’ (ETP) lower distributions following a merger with Sunoco Logistics is a debt reduction step in the right direction.

KMI, WMB, and EPD’s ratios

In our view, the net debt-to-EBITDA ratios for Kinder Morgan and Williams Companies are high, at nearly 6.4x. In comparison, Enterprise Products’ ratio has been well below 5x over the last five years. EPD’s total debt, debt-to-equity, and net debt-to-EBITDA ratios discussed in this and the previous two parts reflect the financial discipline of the company.

In the next part, we’ll discuss the current short interest in EPD, ETE, KMI, and WMB.


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