Enterprise Products Partners Outperformed: Can It Keep It Up?
EPD’s forward distribution yield
As we saw in the previous part, Enterprise Products Partners (EPD) trades at a forward distribution yield of 6.5%. In comparison, Energy Transfer Partners (ETP), Williams Partners (WPZ), Magellan Midstream Partners (MMP), ONEOK (OKE), and Spectra Energy (SE) trade at forward yields of 15.6%, 15.0%, 5.2%, 13.5%, and 6.9%, respectively.
So EPD’s forward yield is nearly 4 percentage points lower compared to the average for selected peers. EPD’s consistent distribution growth, reasonable leverage, strong coverage, and simple structure with no incentive distribution rights contribute to its relatively lower yield.
EPD’s expected distribution growth
The graph above compares the forward yield of EPD and its peers relative to their expected distribution growths. As the graph shows, despite having the same expected distribution growth as EPD, ETP and OKE both trade at higher forward yields compared to EPD.
On the other hand, Spectra Energy trades at the same forward yield as EPD, even though it has a higher expected distribution growth. EPD forms ~1.5% of the Multi-Asset Diversified Income ETF (MDIV). MDIV invests nearly 17% of its portfolio in MLPs.
EV-EBITDA multiple
EPD trades at a trailing 12-month EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 13.6. In comparison, ETP, WPZ, MMP, OKE, and SE trade at EV-to-EBITDA multiples of 11.2, 13.4, 15.0, 11.6, and 10.9, respectively. EPD’s EV-EBITDA ratio is higher than the peer average.
As for forward multiples, EPD trades at a forward EV-EBITDA of 12.5. ETP, WPZ, MMP, OKE, and SE trade at forward EV-EBITDA ratios of 7.6, 7.5, 15, 10, and 11, respectively.
EPD’s forward EV-EBITDA multiple implies a valuation premium likely attributed to lower risk and superior return metrics. In the next part, we’ll analyze the key factors that impact EPD’s stock price in the long run.
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