Comparing Western Gas Partners’s Valuation



Western Gas Partners’ price-to-distributable cash flow

Western Gas Partners (WES) was trading at a price-to-distributable cash flow ratio of 7.6x on August 17, lower than the 8.8x it stood at in late 2Q17 and its last-ten-quarter average of 8.3x. Peers Crestwood Equity Partners (CEQP), DCP Midstream (DCP), and EnLink Midstream Partners (ENLK) have seen a similar decline in their valuation since the rout in energy prices.

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Western Gas Partners’ valuation multiple

Western Gas’s forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple, which is based on its next-12-month EBITDA estimate, was 9.9x on August 17, 2017. This multiple was below its historical five-year average of 12.9x and the peer median of 11.0x.

Western Gas Partners’ distribution yield

Western Gas was trading at a distribution yield of 7.2% on August 17, above its historical five-year average of 4.9%. Peers DCP Midstream, EnLink Midstream Partners, and Crestwood Equity Partners are trading at yields of 10.2%, 10.3%, and 9.8%, respectively, and the Alerian MLP ETF’s (AMLP) yield is 10.4%.

Western Gas’s current valuation looks attractive considering its low leverage, strong distribution growth, strong presence in the prolific Delaware Basin, strong sponsor support, and significant expansion opportunities. Anadarko Petroleum’s (APC) midstream assets have run-rate EBITDA of $150 million–$200 million. It expects to spend ~$600 million on midstream asset expansion in 2017. The partnership can expect a dropdown of these assets in the future.

However, Western Gas’s current valuation might also reflect its declining natural gas throughput volumes in some regions and the current uncertainty in crude oil prices. Western Gas has high commodity price exposure through its natural gas processing and NGL (natural gas liquid) businesses. If crude oil prices continue to fall due to rising supplies, investors could expect Western Gas’s stock price to fall further. Next, we’ll analyze institutional investors’ views on Western Gas Partners.


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