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Williams Companies: Analyzing the Leverage Trends

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Leverage

Williams Companies’ (WMB) flattish leverage trend—mainly in the last few quarters—suggests that its earnings have grown in proportion to its debt. On December 31, 2018, Williams Companies had a net debt of ~$22.0 billion.

WMB leverage

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The debt-to-EBITDA ratio implies how many years it would take a company to repay its debt if the debt and EBITDA are kept constant. The debt-to-EBITDA ratio is one of the most vital measures to consider for midstream companies due to their huge debt burdens. Williams Companies’ net debt-to-EBITDA ratio was ~6.0x at the end of the fourth quarter of 2018, while its five-year average multiple was close to 7.0x.

Williams Companies sold ~$4.6 billion worth of assets in the last three years, which it used largely to repay debt. Williams Companies’ current leverage looks better placed compared to its five-year historical average. The company’s management expects its leverage position to get better this year.

Kinder Morgan (KMI) had a net debt-to-EBITDA ratio of ~5.4x, which is lower than Williams Companies. Energy Transfer’s (ET) net debt-to-EBITDA ratio was 5.2x at the end of the fourth quarter of 2018.

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