Enterprise Products Partners Outperformed: Can It Keep It Up?
EPD’s forward distribution yield
Enterprise Products Partners (EPD) currently trades at a forward distribution yield of ~6.5%. This is higher than its five-year average distribution yield of 5.8%. The rise in EPD’s yield since mid-2014 is in line with the broader midstream energy sector.
Low commodity prices have pushed yields up for most of the companies in the energy sector. 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.
The Alerian MLP Index (AMZ), an index of the top midstream MLPs, currently trades at a yield of ~9.7%. The above graph compares Enterprise Products Partners’ historical distribution yields to its five-year average.
EPD’s EV-EBITDA multiple
Enterprise Products Partners’ forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 12.5 is lower than its historical average of 15.2. The enterprise value of a company is roughly the market value of its debt and equity less its cash holdings. The EV-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.
Enterprise Products Partners’ forward EV-EBITDA multiple is also lower than its trailing 12-month EV-EBITDA multiple of 13.6. This indicates expectations of EBITDA growth in the fourth quarter of 2015. EPD forms ~10.4% of the Global X MLP ETF (MLPA), which consists of 30 energy sector MLPs.
Energy Transfer Partners (ETP), Williams Partners (WPZ), Magellan Midstream Partners (MMP), ONEOK (OKE), and Spectra Energy (SE) are other companies with midstream operations. In the next part, we’ll see how Enterprise Products Partners’ forward yield and EV-EBITDA multiple compare with its peers.
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