What’s in Store for Enbridge Energy Partners in 2016 and beyond?
Enbridge Energy Partners’ forward distribution yield
As we saw in the previous part of this series, Enbridge Energy Partners (EEP) is trading at a forward distribution yield of ~12.7%. In comparison, Plains All American Pipeline (PAA), Williams Partners (WPZ), and ONEOK Partners (OKS) are trading at forward yields of 11.7%, 17.2%, and 9.6%, respectively.
Therefore, Enbridge Energy Partners’ forward yield is nearly equal to the average of selected peers. The company’s 6% lower distributable cash flow outlook for 2016 and its low distribution coverage makes future distribution growth very difficult. This is reflected in analysts’ distribution growth expectations for the MLP.
The graph above compares the forward yields of Enbridge Energy Partners and its peers, relative to expected distribution growth. As the graph shows, EEP is expected to have a compound distribution growth of 0.5% over the next two years. Peers PAA, WPZ, and OKS are also expected to have flat distributions over the next two years. EEP forms ~3.6% of the Alerian MLP ETF (AMLP).
Valuation multiple: Peer comparison
Enbridge Energy Partners is trading at a trailing 12-month EV-to-EBITDA ( enterprise value to earnings before interest, tax, depreciation, and amortization ) multiple of 11.9. In comparison, Plains All American Pipeline (PAA), Williams Partners (WPZ), and ONEOK Partners (OKS) are trading at EV-to-EBITDA multiples of 12.4, 10.1, and 11.8, respectively. Therefore, EEP’s valuation is close to the peer average.
As for forward multiples, Enbridge Energy Partners is trading at a forward EV-to-EBITDA of 10.4. In comparison, Plains All American Pipeline (PAA), Williams Partners (WPZ), and ONEOK Partners (OKS) are trading at forward EV-to-EBITDA multiples of 9.5, 7.8, and 9.4, respectively. In the next and final part of this series, we’ll analyze the key factors that could impact EEP’s stock price in the long run.
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