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Energy Transfer Equity Trades at a Premium to Historical Levels

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Price-to-distributable cash flow

In this part, we’ll analyze Energy Transfer Equity’s (ETE) current valuation using historical and forward multiples. Energy Transfer Equity was trading at a price-to-distributable cash flow of 18.5x as of September 5, 2017. It’s above the average of 18.0x in the last ten quarters. Energy Transfer Equity’s high price-to-distributable cash flow might reflect the expected recovery in its distributable cash flow. The recovery could be driven by higher distribution income from Energy Transfer Partners (ETP) following the recent equity offering and the expiration of IDR subsidies in the fourth quarter.

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Distribution yield

Energy Transfer Equity was trading at a distribution yield of 6.4% as of September 5, 2017, which is above its historical five-year average of 5.4%. At the same time, Energy Transfer Equity’s peers, Williams Companies (WMB) and ONEOK (OKE) were trading at 4.0% and 5.5%, respectively. However, Energy Transfer Equity’s distribution yield is still lower than the Alerian MLP ETF (AMLP) at 10.1%.

Relative valuation

Energy Transfer Equity was trading at a forward EV-to-EBITDA multiple of 12.4x as of September 5, 2017, which is below the historical five-year average of 13.4x. It’s below the peer average multiple of 12.8x. Energy Transfer Equity’s low relative valuation might reflect its relatively higher commodity price exposure, high leverage, and project delays at Energy Transfer Partners.

In the next part, we’ll look at analysts’ recommendations for Energy Transfer Equity.

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