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Energy Transfer’s Valuation Compared to Its Peers

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Valuation

Currently, Energy Transfer (ET) is trading at a forward EV-to-EBITDA multiple close to 11x based on the consensus earnings estimates for the next 12 months. The stock appears to be trading at a cheaper valuation compared to its historical average valuation multiple of 16x. Energy Transfer seems attractive compared to peers’ average valuation multiple close to 10x.

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Premium growth

In 2018, Energy Transfer had a fantastic year with its earnings growing more than 55% YoY. The company witnessed strong growth across all of its divisions due to increased production driven by expansion projects. Analysts expect Energy Transfer’s solid growth to continue in 2019. With the company’s unmatchable asset base, the consensus estimates suggest earnings growth of more than 26% YoY in 2019—one of the fastest growth projections among energy midstream companies.

Energy Transfer stock looks attractive compared to its peers. The company’s higher potential earnings growth and premium yield likely justify the valuation.

Kinder Morgan (KMI) is trading at a forward EV-to-EBITDA multiple of 10.4x, while Williams Companies (WMB) is trading at 11.4x.

Energy Transfer is trading at a distribution yield of 8.0%, which is higher than its five-year average yield of 4.7%. The Alerian MLP ETF (AMLP), which represents the top 25 MLPs, is trading at a yield of 8.1%. Williams Companies yields ~5.3%, while Kinder Morgan yields 4.0%.

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