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How Oneok’s Current Valuation Compares with Its Peers

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Compared to historical valuation

Oneok (OKE) is currently trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of nearly 12.0x. That’s close to its five-year average multiple.

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Discount compared to peers

Oneok’s forward EV-to-EBITDA multiple is lower compared to ~14.0x for Enterprise Products Partners (EPD) and 13.0x for Plains All American Pipeline (PAA). However, it’s comparable to Kinder Morgan’s (KMI) multiple.

The above graph compares OKE’s forward EV-to-EBITDA multiple with select peers. OKE seems to be trading at a slight discount to its peers. However, it’s EV-to-EBITDA multiple is close to its own historical average.

The enterprise value of a company is roughly the market value of its debt and equity less its cash holdings. The EV-to-EBITDA ratio is neutral to the capital structure since it takes into account a company’s debt and equity. A lower ratio may indicate a possible undervaluation.

OKE’s yield

Oneok’s yield of ~4.6% is lower compared to nearly 6.0% for Enterprise Products Partners (EPD) and 6.0% for Energy Transfer Equity (ETE). It’s higher than 4.5% for Magellan Midstream Partners (MMP). The SPDR S&P 500 ETF (SPY) (SPX-INDEX) currently yields nearly 2.0%. The energy sector forms nearly 6.6% of the S&P 500 Index (SPX-INDEX).

Oneok expects a dividend rise of 21.0% for the first dividend following the close of its acquisition of Oneok Partners (OKS), which is expected in 2Q17. It expects an annual dividend growth of 9.0% to 11.0% thereafter through 2021.

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