Summit Midstream Partners LP – Value Analysis (NYSE:SMLP) : June 16, 2017

Capitalcube gives Summit Midstream Partners LP a score of 22.

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 22 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative outperformance over the last year and the last month suggest a leading position.
  • It’s current Price/Book of 1.45 is about median in its peer group.
  • SMLP-US‘s EBITDA-based price multiple implies slower growth than its peers despite its current comparatively high EBITDA-based returns.
  • SMLP-US‘s relatively low net margins and poor asset turns suggest a problematic operating strategy.
  • Change in the company’s annual revenues seems to be coming at the expense of earnings.
  • SMLP-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • Company appears to give away relatively high gross margins to relatively high operating costs suggesting a differentiated product portfolio with low pre-tax margins relative to peers.
  • While SMLP-US‘s revenue growth in recent years has been above the peer median, the stock’s Price/EBITDA 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 41.69% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 36.82%), and interest coverage level of 2.31x, 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 0.61 points from last year’s low and is now close to its five-year average interest coverage.
  • Though its interest coverage increased to 2.31x from 1.70x (in 2016), its peer median remained relatively stable during this period at 1.48x.
  • Interest coverage rose 0.69 points relative to peers.
  • SMLP-US‘s debt-EV is over one standard deviation above its five-year average debt-EV of 29.92%.
  • Like the interest coverage trend, its debt-EV also increased (to 41.69% from 40.18%), while its peer median remained relatively stable during this period at 36.82%.
  • Relative to peers, debt-EV rose 1.57 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. 41.5 1.39 1.54 15.51
TC PipeLines, LP 30.49 1.62 3.02 20.18
American Midstream Partners, LP 49.08 1.21 -0.38 5
EnLink Midstream Partners, L.P. 32.14 0.67 1.15 19.03
Targa Resources Corp. 27.77 0.57 0.95 19.4
Williams Partners, L.P. 29.48 1.5 2.13 21.11
DCP Midstream LP 48.34 0.71 1.41 15.18
Summit Midstream Partners LP 41.69 1.24 2.31 20.75
Peer Median 36.82 1.22 1.48 19.21
Best In Class 27.77 1.62 3.02 21.11

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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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