Summit Midstream Partners LP – Value Analysis (NYSE:SMLP) : December 13, 2017

Capitalcube gives Summit Midstream Partners LP a score of 50.

Our analysis is based on comparing Summit Midstream Partners LP with the following peers – Williams Companies, Inc., TC PipeLines, LP, American Midstream Partners, LP, EnLink Midstream Partners, L.P., Targa Resources Corp., Williams Partners, L.P. and DCP Midstream LP (WMB-US, TCP-US, AMID-US, ENLK-US, TRGP-US, WPZ-US and DCP-US).

Investment Outlook

Summit Midstream Partners LP has a fundamental score of 50 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • From a peer analysis angle, relative underperformance over the last year has improved more recently.
  • It’s current Price/Book of 1.29 is about median in its peer group.
  • We classify SMLP-US as Harvesting because of the market’s relatively low growth expectations despite its relatively high returns.
  • SMLP-US‘s relatively high profit margins are burdened by relative asset inefficiency.
  • Change in the company’s annual revenues seems to be coming at the expense of earnings.
  • Over the last five years, SMLP-US‘s return on assets has improved from below median to better than the median among its peers, suggesting that the company has improved its relative operations markedly.
  • The company’s relatively high gross and pre-tax margins suggest a differentiated product portfolio and tight control on operating costs relative to peers.
  • While SMLP-US‘s revenue growth in recent years has been above the peer median, the stock’s P/E ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.
  • The company’s relatively low level of capital investment and below peer median returns on capital suggest that the company is in maintenance mode.
  • SMLP-US seems to be constrained by the current level of debt.

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Leverage & Liquidity

SMLP-US is debt-constrained.

  • With debt at a relatively high 40.18% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 40.13%), and interest coverage level of 2.62x, SMLP-US seems debt-constrained.
  • All 7 peers for the company have an outstanding debt balance.

SMLP-US has moved to a relatively high leverage from a Limited Flexibility profile at the recent year-end.

  • SMLP-US‘s interest coverage has increased 0.91 points from last year’s low and is now close to its five-year average interest coverage.
  • Though its interest coverage increased to 2.62x from 1.70x (in 2016), its peer median remained relatively stable during this period at 1.47x.
  • Interest coverage rose 1.00 points relative to peers. It is also above the 2.50x coverage benchmark unlike the peer median.
  • SMLP-US‘s debt-EV is greater than (but within one standard deviation of) its five-year average debt-EV of 29.92%.
  • Though its debt-EV has remained relatively stable at 40.18% compared to 2016, its peer median has increased to 40.13% from 36.88% during this period.
  • Relative to peers, debt-EV fell 3.25 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Williams Companies, Inc. 41.9 0.97 1.67 16.46
TC PipeLines, LP 40.15 1.12 2.64 15.12
American Midstream Partners, LP 52.35 1.13 -0.38 3.6
EnLink Midstream Partners, L.P. 32.52 0.85 1.26 18.79
Targa Resources Corp. 31.49 0.74 1.03 20.47
Williams Partners, L.P. 40.12 1.06 2.23 21.82
DCP Midstream LP 33.65 0.73 0.92 12.88
Summit Midstream Partners LP 40.18 0.84 2.62 21.85
Peer Median 40.13 0.91 1.47 17.62
Best In Class 31.49 1.13 2.64 21.85

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Company Profile

Summit Midstream Partners LP is a growth-oriented limited partnership focused on owning and operating midstream energy infrastructure that is strategically located in the core producing areas of unconventional resource basins, primarily shale formations, in North America. It operates through the following segments: Utica Shale, Williston Basin, Piceance Basins, Barnett Shale and Marcellus Shale. The company was founded by Steven J. Newby in May 2012 and is headquartered in The Woodlands, TX.

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