WES, DCP, OKE, TRGP: What Current Valuations Indicate



Relative valuation

So far in this series, we’ve analyzed DCP Midstream (DCP), Western Gas Partners (WES), Targa Resources (TRGP), and ONEOK (OKE) based on their recent market performance, operating performance, throughput volumes, financial position, and distribution yields. In this article, we’ll perform a valuation analysis for the four peers.

OKE has the highest forward EV-to-EBITDA multiple of 14.7x among the selected peers. OKE’s high valuation might reflect its strong earnings growth potential, impressive distribution coverage, and strong presence in the prolific Permian and Anadarko regions. We looked at the earnings guidance of the four peers in part three of this series.

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WES has the lowest forward EV-to-EBITDA multiple of 8.9x among the selected peers. WES’s current valuation looks attractive considering its low leverage, the addition of expansion opportunities, and strong distribution growth guidance. Moreover, WES has significant dropdown opportunities from sponsor Anadarko Petroleum (APC). APC has a dropdown inventory with an EBITDA estimate of over $300 million for 2018. It expects to spend $550 million on midstream infrastructure in 2018.

DCP Midstream’s forward EV-to-EBITDA multiple of 9.6x is below the peer average of 11.3x. DCP’s low valuation might indicate a buying opportunity considering its strong expansion plans and improvement in non-fee-based margins due to strong crude oil prices.

TRGP’s forward EV-to-EBITDA multiple of 11.8x is above the selected peer average. TRGP’s high multiple might reflect its impressive distribution coverage, simplified capital structure, and significant expansion opportunities.

Current versus historical valuation

WES and TRGP are currently trading at a discount to their one-year averages. Out of the two, WES might offer a better risk-reward to investors. In the next article, we’ll look into the technical indicators for the four peers.


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