Crestwood Equity Partners (CEQP) trades at a ridiculously low valuation these days. That's why the master limited partnership's (MLP) distribution currently yields an eye-popping 9%.

The company is working to take advantage of this discount. It recently made moves to enhance its ability to repurchase its dirt-cheap units. Its value-conscious investors won't want to miss this big-time income producer.  

Cheap any way you measure it

This year's strong conditions in the energy market enabled Crestwood to boost its 2022 forecast when it reported its second-quarter results in July. The MLP now expects to generate $800 million to $840 million of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), up from its initial forecast range of $780-$840 million. With a current enterprise value (EV) of around $7 billion, Crestwood trades at a mere 8.5 times its EV to adjusted EBITDA. That's a dirt cheap price for a company that's steadily growing its EBITDA.

The company is even cheaper on a cash flow basis. Crestwood expects to produce $505 million to $545 million of distributable cash flow this year, a proxy for free cash flow. With its market capitalization recently around $3 billion, it trades at only 5.6 times distributable cash flow. That gives it a free cash flow yield of around 18%. That's ridiculously cheap these days. For perspective, the S&P 500 has a free cash flow yield of 5%, while the Nasdaq Composite's is around 4%.

Taking advantage of the situation

Crestwood recently took a step to capitalize on its undervalued units by selling a non-core asset to help fund additional repurchases. The company announced the sale of its Marcellus natural gas gathering and processing assets to Antero Midstream (AM 0.85%). It will receive $205 million in cash, implying a sales multiple of over seven times its estimated 2023 adjusted EBITDA. That's a strong price for an asset generating declining cash flow because the anchor producer, Antero Midstream's sponsor Antero Resources (AR 1.63%), has focused its activities elsewhere, allowing production tied to these assets to decline naturally. The deal will give Antero control over the assets, benefiting both the producer and midstream provider. Meanwhile, the transaction will allow Crestwood to cash in on some non-core assets, giving it the funds to reduce debt and make opportunistic unit repurchases. 

The company plans to seize a recently presented opportunity to repurchase a sizable number of units. Chord Energy (NASDAQ: CHRD) unveiled plans to sell 11.4 million units of Crestwood. Chord Energy, then Oasis Petroleum, acquired those units when it sold its stake in its MLP, Oasis Midstream Partners, to Crestwood earlier this year. 

Crestwood intends to repurchase up to $125 million of the units Chord is selling on the open market. That's nearly half of the $306 million in proceeds Chord Energy anticipates receiving in that offering. The sale will support Chord Energy's capital return program. It recently boosted its base dividend by 114% and launched a $300 million share repurchase program. Meanwhile, Crestwood's repurchase amount represents almost 5% of the company's outstanding units. 

The deal will also further enhance its balance sheet as the remaining proceeds will go toward debt reduction. That puts Crestwood in an even better position to achieve its long-term leverage target of 3.5 times debt to adjusted EBITDA next year, giving it more financial flexibility. It anticipates producing significant excess cash after covering its distribution and expansion program next year. The MLP could use those funds to opportunistically repurchase more of its dirt cheap units and increase its distribution once again.

A dirt cheap income stream

Crestwood Equity Partners continues to trade at a bottom-of-the-barrel valuation despite making several value-enhancing moves over the past year. That means investors can lock in a high-yielding income stream these days. With each move making the distribution more sustainable, Crestwood looks like an excellent opportunity that value-conscious income investors won't want to miss.