ET had a stigma for having too much debt on its balance sheet. One way to determine ET's debt load compared to its peers is by looking at total debt to Adjusted EBITDA. ET has $49.06 billion in total debt and generates $13.09 billion in Adjusted EBITDA placing its debt to Adjusted EBITDA ratio at 3.75x. The peer group average is 3.74x, placing ET right on the bubble. Based on the Adjusted EBITDA, ET's debt load doesn't look as concerning as it may seem just by looking at the number on its balance sheet.
Steven Fiorillo, Seeking Alpha
ET now has the largest distribution yield in its peer group. The recent distribution increase has brought its yield to 9.48%. This is the largest of its peers, and as I outlined from the excess DCF left over after paying distributions, the distribution is well covered. The average yield of the group is 6.83%, and when TRGP is excluded, it jumps to 7.44%. ET is still 2.04% larger than the group average when TRGP is excluded.
Steven Fiorillo, Seeking Alpha
Currently, the peer group has an average DCF to market cap ratio of 7.21x and an Adjusted EBITDA to market cap ratio of 5.88x. If ET had a market cap of $53.3 billion, its DCF to market cap ratio would be 7.2x. This would also put ET's Adjusted EBITDA to market cap ratio at 4.07x. If ET had a market cap of $75 billion, its Adjusted EBITDA to market cap ratio would be 5.73x compared to the current peer group average of 5.88x, and its DCF to market cap ratio would jump to 10.13x and compete for the largest multiple on DCF.
Depending on which multiple you would like to use, ET is undervalued by 34.09% to 88.69%. This would correlate to a unit price range of $17.26 to $24.28. I feel the fair value is somewhere around the $20 level, and shares are still drastically undervalued.
Conclusion
ET is still my favorite energy infrastructure company, and management gave us a lot to be thankful for in 2022. The distribution has been restored, future distribution increases are a possibility, C-Corp currency is a possibility, and guidance was strong. Tremendous progress has been made, and the market is still discounting units. While I believe it's not likely that units fall back into the single digits, a strong case can be made that units should trade for at least $17.26, and I think fair value is closer to $20. I will continue to reinvest each distribution and wait for the market to fairly value this company.