The stock of Teekay LNG Partners LP (NYSE:TGP, 30-year Financials) appears to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $15.02 per share and the market cap of $1.3 billion, Teekay LNG Partners LP stock gives every indication of being fairly valued. GF Value for Teekay LNG Partners LP is shown in the chart below.
Because Teekay LNG Partners LP is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 9.3% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Teekay LNG Partners LP has a cash-to-debt ratio of 0.08, which ranks worse than 77% of the companies in Oil & Gas industry. Based on this, GuruFocus ranks Teekay LNG Partners LP's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of Teekay LNG Partners LP over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Teekay LNG Partners LP has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $591.1 million and earnings of $0.66 a share. Its operating margin is 46.88%, which ranks better than 95% of the companies in Oil & Gas industry. Overall, the profitability of Teekay LNG Partners LP is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Teekay LNG Partners LP over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Teekay LNG Partners LP is 9.3%, which ranks better than 74% of the companies in Oil & Gas industry. The 3-year average EBITDA growth is 13.7%, which ranks better than 67% of the companies in Oil & Gas industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Teekay LNG Partners LP's return on invested capital is 5.14, and its cost of capital is 5.75. The historical ROIC vs WACC comparison of Teekay LNG Partners LP is shown below:
In summary, the stock of Teekay LNG Partners LP (NYSE:TGP, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 67% of the companies in Oil & Gas industry. To learn more about Teekay LNG Partners LP stock, you can check out its 30-year Financials here.
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