What ETE’s and ETP’s Valuations Indicate before 1Q18 Earnings



Energy Transfer Equity’s valuation

So far in this series, we’ve looked at Energy Transfer Partners’ (ETP) EBITDA (earnings before interest, tax, depreciation, and amortization) estimates, segment performance drivers, and throughput volumes. We’ve also looked at the 1Q18 key highlights and market performances for Energy Transfer Partners and its GP (general partner) Energy Transfer Equity (ETE). In this part, we’ll analyze their current valuations based on historical and forward multiples.

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Energy Transfer Equity was trading at a price-to-distributable-cash-flow (or DCF) ratio of 17.3x as of May 1. That’s lower than the levels at the end of 4Q17. However, the current price-to-DCF ratio is higher than the ten-quarter average of 15.3x. Energy Transfer Equity’s current distribution yield of 7.7% is slightly above the historical three-year and one-year average of 7.2% and 7%, respectively.

ETE’s high current valuation compared to its historical levels could indicate its strong expected cash flow growth, driven by the expiration of IDR (international depositary receipt) subsidies and distribution growth at ETP.

Energy Transfer Partners’ valuation

Energy Transfer Partners was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 7.7x as of May 1, which is well below the five-year average of 11.0x. Moreover, it’s trading below the peer median of 11.6x. ETP’s lower valuation compared to its own and its peers’ historical valuations indicates a buying opportunity considering its strong earnings growth, significant presence in the prolific Permian Basin, and strong expansion opportunities. Its current valuation might reflect its high leverage, high crude oil exposure, and project delays.

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


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