Analyzing ETE and ETP’s Current Valuations



Energy Transfer Equity’s valuation

So far in the series, we discussed Energy Transfer Partners’ (ETP) segment-wise performance and distribution outlook. We discussed the capital structure, financial position, and organic expansion plans. In this part, we’ll analyze Energy Transfer Partners and Energy Transfer Equity’s (ETE) current valuations based on historical and forward multiples.

Energy Transfer Equity was trading at a price-to-DCF ratio of 14.8x by the end of the first quarter. Now, the company is trading at a price-to-DCF ratio of 17.2x. The current price-to-DCF ratio is higher than the ten quarter average of 14.9x. Energy Transfer Equity’s current distribution yield of 7.4% is slightly above the historical three-year and one-year average of 7.3% and 7.0%, respectively.

Article continues below advertisement

Energy Transfer Equity’s high price-to-DCF ratio compared to its historical levels might not be justified considering the flat distribution at Energy Transfer Partners and Energy Transfer Equity, Energy Transfer Equity’s weak leverage position, and Energy Transfer Partners’ uncertain distribution outlook. Energy Transfer Equity’s current valuation might reflect its strong distributable cash flow growth and significant expansion opportunities.

Energy Transfer Partners’ valuation

Energy Transfer Partners was trading at a forward EV-to-EBITDA multiple of 7.8x as of May 15, which is below the five-year average of 11.0x. Energy Transfer Partners is trading below the peer median of 11.0x. Energy Transfer Partners’ lower valuation relative to its historical valuation and its peers indicates a buying opportunity considering its strong expansion opportunities, strong earnings growth, and significant presence in the prolific Permian Basin.

Next, we’ll discuss analysts’ recommendations for Energy Transfer Partners and Energy Transfer Equity.


More From Market Realist