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What Does Energy Transfer Equity’s Current Valuation Suggest?

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

Price-to-distributable cash flow

Energy Transfer Equity (ETE) was trading at a price-to-distributable cash flow of 17.9x as of December 22, 2017, which is slightly below the last-ten-quarter average of 18.0x.

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Distribution yield

Energy Transfer Equity was trading at a distribution yield of 7.0% as of December 22, 2017, which is above the historical one-year and five-year averages of 6.4% and 5.4%, respectively. Notably, ETE’s distribution yield is still lower than the Alerian MLP ETF (AMLP) at 8.0% and higher than the SPDR S&P 500 ETF (SPY) at 1.9%.

Relative valuation

Energy Transfer Equity was trading at a forward EV-to-EBITDA multiple of 11.6x as of December 22, 2017, which is below the historical five-year average of 13.4x. However, it is above the peer median multiple of 10.8x. ETE peers ONEOK (OKE) and Kinder Morgan (KMI) are trading at 13.6x and 10.7x, respectively.

ETE’s high relative valuation might not be justified considering its huge leverage and relatively high crude oil exposure. At the same time, ETE’s current valuation might reflect the expected growth in the partnership’s distributable cash flows, which could come from the removal of IDR (incentive distribution rights) subsidies from the fourth quarter of 2017, distribution growth at Energy Transfer Partners (ETP), and equity offerings at ETP.

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