What ETE’s and ETP’s Valuations Indicate before the 4Q17 Earnings



Energy Transfer Equity’s valuation

So far in this series, we’ve examined at Energy Transfer Partners’ (ETP) EBITDA[1. earnings before interest, tax, depreciation, and amortization] estimates, segment performance drivers, and throughput volumes. We also looked into the 4Q17 distribution, key highlights, and market performance for Energy Transfer Partners and its GP (general partner), Energy Transfer Equity (ETE).

In this article, we’ll analyze their current valuations based on historical and forward multiples.

Energy Transfer Equity was trading at a forward EV-to-EBITDA[1. enterprise value to earnings before interest, tax, depreciation, and amortization] multiple of 11.5x on February 14, 2018, which is below its historical three-year and one-year averages of 12.8x and 12.6x, respectively.

However, it’s still trading above the peer median multiple of 10.4x. ETE’s peers Western Gas Equity Partners (WGP) and Williams Companies (WMB) are currently trading at 13.8x and 10.8x, respectively.

Energy Transfer Equity was trading at a distribution yield of 7.0% on February 14, 2018, which is above the historical five-year average of 5.5%.

ETE’s low current valuation compared to its historical levels might indicate a buying opportunity considering the strong expected cash flow growth. This cash flow growth is expected to be driven by the expiration of IDRs subsidies, equity issuances at ETP, and distribution growth at ETP.

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Energy Transfer Partners’ valuation

Energy Transfer Partners was trading at a forward EV-to-EBITDA multiple of 8.0x on February 14, which is below the one-year average of 10.3x. Moreover, it’s trading below the peer median of 11.0x.

ETP’s lower valuation relative to its historical valuation and peers indicates a buying opportunity considering its strong earnings growth, significant presence in the prolific Permian Basin, and strong expansion opportunities. At the same, the partnership’s current valuation could reflect its high leverage and relatively high crude oil exposure.

In the final article of this series, we’ll look at the recent analysts’ recommendations for Energy Transfer Equity and Energy Transfer Partners.


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