Is Energy Transfer Partners the Most Exciting Pipeline Company?
For oil and gas companies, there's nothing more important than reserves, rigs, refineries, and pipelines. However, to be truly valuable, these assets must be capable of generating profitable returns.
Value for money
It makes little sense for an oil storage and transportation company to own a lot of pipelines and storage terminals, but not be able to utilize them to full capacity. In short, you have to understand how valuable these assets are to the company. Today, we'll take a look at Energy Transfer Partners (NYS: ETP) and see how efficiently the company is using its resources.
To help evaluate this, we can look at some important metrics:
- Return on assets, or net income divided by total assets, indicates how efficiently the company generates profits for every dollar of assets it owns. A higher value indicates that the assets are more valuable. The metric is pretty useful when used as a comparative measure -- against peers and the industry in general. Typically, ROA for Energy Transfer Partners' peer group in the oil storage and transportation industry is about 4.8%.
- Fixed-asset turnover ratio, or revenues divided by total fixed assets, indicates how efficiently the company's refineries are generating revenues. The higher the turnover rate, the better. For these companies, a value above 1.6 times looks pretty good.
- Total Enterprise Value/TTM EBITDA shows how expensive the company looks when compared against its trailing-12-month earnings before interest, tax, depreciation, and amortization.
This is how Energy Transfer Partners stacks up against its peers:
Return on Assets (TTM)
Fixed-Asset Turnover Ratio
|Energy Transfer Partners||5.6%||0.6||1.9||11.3|
|Kinder Morgan (NYS: KMI)||3.3%||0.5||8.4||16.7|
Source: S&P Capital IQ. TTM = trailing 12 months; NM = not meaningful.
Energy Transfer Partners seems to be doing a great job. Its ROA is among the best, beating the industry average of 4.8%. This master limited partnership has a thriving interstate natural gas transportation pipeline service. The surge in natural gas production in the past couple of years has ensured that pipeline companies don't lose out. The company's fixed asset turnover, although better than the peers here, couldn't beat the industry average.
Energy Transfer is further consolidating its position by acquiring Southern Union through its general partner Energy Transfer Equity (NYS: ETE) . In the process, ETP has acquired a 50% stake in the Florida Gas Transmission, a pipeline system that has a capacity of 3 billion cubic feet per day and supplies almost two-thirds of the natural gas consumed in the state of Florida. The company has also expanded its presence by way of joint ventures. The 185-mile Fayetteville Express Pipeline is a 50/50 joint venture with Kinder Morgan Energy Partners.
With an expanding network of pipelines, Energy Transfer's assets are somewhat undervalued with its price-to-book less than two. The industry average, at 3.5, is way above that. Investors must keep an eye on this stock.
Foolish bottom line
Given the opportunity and its vast presence through pipelines, this pipeline company could be undervalued. Being an MLP, the company pays a dividend, which currently yields 7.8%.This might be an excellent opportunity to grab a few shares. If you would rather be on the sidelines and study the company for a while before jumping in, add it to your personalized watchlist. It's free. And will bring you all the news on the stocks you care about. Click here to start today.
At the time this article was published Fool contributor Isac Simon does not own shares of any of the companies mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.