What’s in Store for Enbridge Energy Partners in 2016 and beyond?
Enbridge Energy Partners’ forward yield
Enbridge Energy Partners (EEP) currently trades at a forward distribution yield of about 12.7%. This is much higher than its five-year average distribution yield of 8.1%. The forward distribution yield of a company is calculated by dividing its estimated one-year future distribution per unit by its market price per unit.
We should note, however, that low commodity prices have pushed yields up for most companies in the energy sector, and the steep decline in Enbridge Energy Partners’ stock price since mid-2015 has pushed its yield up.
The Alerian MLP Index (AMZ), an index of the top midstream MLPs (master limited partnerships), currently trades at a yield of approximately 8.7%. The above graph compares Enbridge Energy Partners’ historical distribution yields with its five-year average. EEP forms ~3.6% of the Alerian MLP ETF (AMLP).
EEP’s forward EV-to-EBITDA
Enbridge Energy Partners’ forward EV-to-EBITDA ( enterprise value to earnings before interest, tax, depreciation, and amortization ) multiple of 10.4 is lower than its historical average of 10.8.
The enterprise value of a company is roughly the market value of its debt and equity minus its cash holdings. However, the EV-to-EBITDA ratio is neutral to capital structure, as it takes into account a company’s debt and equity. A lower ratio may indicate a possible undervaluation.
EEP’s EV-to-EBITDA
Enbridge Energy Partners’ forward EV-to-EBITDA multiple is also lower than its trailing 12-month EV-to-EBITDA multiple of 11.9. This indicates expectations of EBITDA growth in 2016.
Plains All American Pipeline (PAA), Williams Partners (WPZ), and ONEOK Partners (OKS) are some other companies with midstream operations. We’ll see how Enbridge Energy Partners’ forward yield and EV-to-EBITDA multiple compares with their multiples in the next part of this series.
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