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Is ONEOK Stock Currently Overvalued?

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Premium relative to its peers

ONEOK (OKE) stock is currently trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 14.3x. This is higher compared to 13.4x for Enterprise Products Partners (EPD), 12.5x for Plains All American Pipeline (PAA), and 11.5x for Kinder Morgan (KMI). So, OKE seems to be trading at a premium compared to its peers.

The chart below compares the forward EV-to-EBITDA multiples for OKE, EPD, PAA, and KMI. As the graph shows, OKE stock is trading at a multiple higher compared to its five-year average of 12.4x. So, it’s trading at a premium compared to its historical valuation as well.

You can learn about recent changes in Kinder Morgan’s key indicators in Weekly Wrap-Up of Kinder Morgan: Week Ended August 4.

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OKE’s yield

ONEOK is trading at a dividend yield of ~5.6%. This is higher compared to ~2.5% for Kinder Morgan and ~5.0% for Magellan Midstream Partners (MMP). However, it’s lower compared to ~6.3% for Enterprise Products Partners. The Alerian MLP Index currently trades at a yield of ~7.4%. The broader markets (SPY) yield nearly 2.0%. The energy sector forms ~6.0% of the S&P 500 Index (SPX-INDEX).

Plains All American fell ~20.0% on August 8, 2017, on the announcement of a possible distribution cut. You can learn more in Why Plains All American Is Expecting Another Distribution Cut.

For an overview of MLPs’ 2Q17 performance, please read How Mid-Cap and Large-Cap MLPs Performed in 2Q17. In the final part of this series, we’ll take a look at what Wall Street analysts recommend for OKE. We’ll also discuss the outlook for OKE.

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