Discount compared to historical valuation
Kinder Morgan (KMI) is currently trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of nearly 12.5x. This is lower than its four-year-average multiple of ~15x.
Discount relative to peers
Using LTM (last 12-month) EBITDA, Kinder Morgan trades at an EV-to-EBITDA of ~12.4x. This is lower than the average of ~15x for select peers. Kinder Morgan’s multiple is higher, however, than that of Energy Transfer Partners (ETP).
The above graph compares KMI’s EV-to-EBITDA multiple with selected peers. So KMI seems to be trading at a discount to its own historical valuation and to peers.
Notably, Kinder Morgan’s yield of 2.2% is lower than Enterprise Products Partners’ (EPD) 5.7% yield, Magellan Midstream Partners’ (MMP) 4.3%, and Energy Transfer Equity’s (ETE) 6%. The SPDR S&P 500 ETF (SPY) (SPX-INDEX) currently yields nearly 2%.
Impact of general partner interests and IDRs
The EV-to-EBITDA can be misleading when trying to understand LP (limited partner) unit valuations. This is because the entire EBITDA in the EV-to-EBITDA ratio calculation may not be available to limited partners due to the presence of IDRs (incentive distribution rights). It’s thus useful to make adjustments to EBITDA to reflect the interests of limited partners.
Both Enterprise Products Partners and Magellan Midstream Partners don’t have IDRs, while ETP has IDRs.
To learn more about IDRs, read The Importance of Incentive Distribution Rights for MLPs.
Continue to the next and final part of the series for a look at what Wall Street analysts are recommending for KMI.
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