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Is Williams Companies a ‘Buy’ at Current Price Levels?

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

Williams Companies’ EV-to-EBITDA multiple

In Part 1 of this series, we saw that Williams Companies has risen 12.2% from its YTD low. In this part, we’ll try to find out whether Williams Companies is a “buy” at the current price levels based on its historical and forward multiples. Williams Companies’ current price translates into an EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 12.2x as of July 18, 2017, which is below its historical average. TransCanada (TRP) and ONEOK (OKE) are trading at higher multiples of 14.6x and 16.7x, respectively, while Kinder Morgan (KMI) is trading at 11.6x.

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Forward EV-to-EBITDA multiple

Williams Companies’ forward EV-to-EBITDA multiple was 11.7x as of July 18, 2017—below the historical five-year average of 13.2x. It’s below the peer median forward EV-to-EBITDA multiple of 13.6x.

Dividend yield

Williams Companies was trading at a dividend yield of 3.9% as of July 18, 2017, which is below the last five-year average of 5.3%. Notably, Williams Companies’ distribution yield is higher than the SPDR S&P 500 ETF (SPY) (SPX-INDEX) (1.9%).

Williams Companies’ current valuation looks attractive and might indicate a buying opportunity considering its improved consolidated balance sheet position driven by recent measures including asset sales, strong growth guidance, and the current government’s bullishness on LNG (liquefied natural gas) exports. Williams Partners (WPZ) has long-term contracts with four of the six LNG projects under construction.

Williams Companies expects to grow its dividend 10%–15% over the next several years. Williams Companies’ dividend growth depends on Williams Partners’ distributable cash flow growth. Williams Partners’ distributable cash flow growth depends on the successful completion of its organic projects. Williams Partners expects to spend $2.1 billion–$2.8 billion on organic projects in 2017—$1.4 billion–$1.9 billion would be spent on Transco projects.

In the next part, we’ll look at what Wall Street analysts think about Williams Companies.

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