ETP Investment Analysis Report & Stock Research, Energy Transfer Partners LP

Ockham's Rating/Recommendation Summary

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ETP Revenue

As a value investing shop, we are interested in seeing how ETP's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 1.19x and the low end of the range at 0.71x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for ETP of 1.66x is well above its historical average. This means that ETP looks relatively expensive compared to its historical Price to Sales average, and thus it is more difficult to believe that there is significant price appreciation potential. In order for the stock to become more attractive, we would like to see a decline in the Price to Sales ratio of 75% just to return ETP to its historical average.

ETP Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. ETP is below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for ETP, the current level of Cash Earnings compared to its historical levels helps identify where ETP is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 11.09 and a historical low Cash Earnings per share ratio of 6.59, an investor can relate where value becomes optimal.

With a historical average Cash Earnings ratio of 8.84, the current Cash Earnings ratio of 8.10 is a positive opportunity for value in the Ockham view. Naturally, we would love to see a deeper value opportunity for ETP, but to get there one of two things must occur (or both). Either the stock price must decline further to increase the long term buying opportunity, or the management at ETP needs to earn more cash. If either, or both, of these occur, then we could see a significant gap emerge between what investors were willing to pay for in the past, and where ETP is trading currently (latest close price of $47.64).

ETP Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from ETP against the historic high and low levels over an available data range. Because ETP has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In ETP’s case, the estimated annual dividend is $3.58 producing a current dividend yield of 7.51%. The highest dividend yield from ETP in recent history was 15.41% while the lowest dividend yield was 4.62%. It is never a good sign for a company to pay significantly lower dividends, in this case 25.01% below the median yield. Although, dividends are a relatively small portion of our analysis framework, we still see this as a negative factor.