Midstream stocks rise
So far, midstream stocks Kinder Morgan (KMI), ONEOK (OKE), and Williams Companies (WMB) have each risen ~30% in 2019. The three stocks outperformed the Energy Select Sector SPDR ETF (XLE), which has risen ~16% year-to-date. Kinder Morgan is trading above its 50-day and 200-day moving averages. Kinder Morgan’s 50-day average crossed above its 200-day moving average—a bullish indicator—in February.
Williams Companies stock is also trading above its 50-day and 200-day moving averages. Williams Companies’ 50-day moving average crossed above its 200-day average last week. The movement could be a bullish signal for the stock in the near term. Like Kinder Morgan and Williams Companies, ONEOK is trading above its 50-day and 200-day averages. ONEOK’s 50-day average crossed above its 200-day average on March 25.
As the above graph shows, ONEOK’s forward EV-to-EBITDA multiple is higher than its five-year average, which indicates possible overvaluation. Kinder Morgan and Williams Companies’ multiples are lower than their respective five-year averages, which indicates some scope for the multiple to expand. Kinder Morgan’s forward EV-to-EBITDA multiple is the lowest among the three companies.
The three stocks have higher PE ratios than the S&P 500 Index. The companies’ forward PE ratios are also higher than the market’s PE ratio. Kinder Morgan’s forward PE ratio of 20x is the lowest among the three companies.
Midstream stocks are often valued using the EV-to-EBITDA multiple. The multiple is neutral to capital structure and considers a company’s debt and equity.