What Investors Should Know about Energy Transfer Equity
(Continued from Prior Part)
Energy Transfer Equity’s valuations
In this part, we’ll discuss Energy Transfer Equity’s (ETE) valuations based on its EV/EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. First, we’ll analyze the trend in its enterprise value.
Enterprise value
Energy Transfer Equity’s EV has grown over the past several quarters. It was driven by growth in its equity value and debt. Its total outstanding debt more than doubled while its equity value almost tripled in the last three years. Energy Transfer Equity lost considerable equity value since the rejection of its merger proposal by Williams Companies (WMB). This led to the fall in the partnership’s enterprise value.
On September 7, 2015, Energy Transfer Equity’s EV stood at $84.6 billion compared to $90.1 billion as of June 30, 2015. The fall is mainly as a result of a $5.5 billion erosion in the partnership’s equity value—or market capitalization.
EV/EBITDA
Energy Transfer Equity’s current EV/EBITDA as of September 7, 2015, of 19.2x is near its three-year average multiple of 20.92x. However, its EV/EBITDA multiple has been quite volatile over this period. It has ranged between 16x and 23x. Energy Transfer Equity’s valuations rose in sync with Energy Transfer Partners’ (ETP) distribution growth recovery since 3Q13. Strong distribution growth at Energy Transfer Partners and Sunoco Logistics (SXL) is driving Energy Transfer Equity’s current valuations.
Forward EV/EBITDA
In a forward-looking market, a forward EV/EBITDA multiple is a better measure compared to the historic EV/EBITDA multiple. Energy Transfer Equity’s forward EV/EBITDA multiple is 20.15x. Its peers, Williams Companies (WMB), Enbridge (ENB), and EnLink Midstream (ENLC) currently trade at forward EV/EBITDA multiples of 16.84x, 14.93x, and 14.34x, respectively. They are the general partners of Williams Partners (WPZ), Enbridge Energy Partners (EEP), and EnLink Midstream Partners (ENLK), respectively. Together, Energy Transfer Equity, Williams Partners, and Enbridge Energy Partners account for 17.48% of the Global X MLP ETF (MLPA).
Energy Transfer Equity’s strong distribution growth guidance and coverage and the solid project backlog could be the possible reasons for its higher valuations compared to its peers. In this next part, we’ll see Energy Transfer Equity’s historical and planned capital expenditure. This also drives its valuations.
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