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EPD, MPLX, ETP, PAA: What Do Current Valuations Indicate?

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Price-to-DCF multiples

Andeavor Logistics (ANDX), Magellan Midstream Partners (MMP), and Plains All American Pipeline (PAA), top Alerian MLP Index constituents by market capitalization, are trading at price-to-DCF (distributable cash flow) ratios higher than the peer average. Andeavor Logistics, Magellan Midstream Partners, and Plains All American Pipeline are trading at price-to-DCF ratios of ~12.4x, 14.6x, and 17.2x, respectively.

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A higher price-to-DCF ratio indicates possible overvaluation. The above graph shows the price-to-DCF ratio for selected MLPs. As the graph shows, Enterprise Products Partners (EPD), Enable Midstream Partners (ENBL), and MPLX (MPLX) have price-to-DCF multiples close to the average ratio for the selected peers.

ETP, WES, ENLK

Given the pending the merger with Energy Transfer Equity (ETE), Energy Transfer Partners’ (ETP) ratio is not really comparable with peers.

Western Gas Partners’ (WES) recent fall as well as the lack of a decision on the simplification of its structure might have pushed its valuation lower. EnLink Midstream Partners (ENLK) also announced in its Q2 earnings call that it’s evaluating the best corporate structure for itself for the long term.

Future uncertainties are reflected in the discounted valuations of Energy Transfer Partners, Western Gas Partners, and EnLink Midstream Partners relative to peers. Let’s next take a look at the spread that MLP yields offer over Treasury yields.

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