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Why Hold Strategy is Apt for Enterprise Products (EPD) Stock Now

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Enterprise Products Partners LP (EPD - Free Report) has witnessed upward estimate revisions for 2021 and 2022 earnings in the past 60 days. In fact, three out of six analysts have revised EPD's earnings estimates upward for 2021, while five of eight analysts have upwardly revised the same for 2022.

Factors Working in Favor

Enterprise Products, currently carrying a Zacks Rank #3 (Hold), has a stable business model and is not significantly exposed to the volatility in oil and gas prices. Enterprise Products generates stable fee-based revenues from its extensive pipeline network that spreads across nearly 50,000 miles, transporting natural gas, natural gas liquids (NGLs), crude oil petrochemicals and refined products.

The midstream infrastructure provider also has storage assets that can store roughly 260 million barrels of NGL, petrochemical, refined products and crude oil. These assets can also store 14 billion cubic feet of natural gas. Moreover, Enterprise Products has $2.9 billion of major capital projects under construction that are likely to provide incremental fee-based revenues.

The partnership’s balance sheet has lower debt exposure than the composite stocks belonging to the industry. Its debt-to-capitalization ratio of 0.53 is lower than the industry’s 0.55. In fact, the ratio has persistently been lower than the stocks in the industry in the past few years. The liquidity profile of Enterprise Products is impressive, as EPD reported its consolidated liquidity at $6.7 billion, which incorporates credit capacity and unrestricted cash.

Risks

Enterprise Products has several assets that are providing midstream services for many years. This has raised the possibility of investing massive maintenance capital in order to maintain those infrastructures. Thus, in the future, Enterprise Products can increase maintenance or repair expenses.

The rapidly spreading coronavirus variant, Omicron, is affecting global economies. Thus, the pandemic continues to impact adversely to Enterprise Products’ overall business and operations.

Stocks to Consider

Better ranked players in the energy space include PDC Energy, Inc. (PDCE - Free Report) , Sunoco LP (SUN - Free Report) and Earthstone Energy, Inc. (ESTE - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PDC Energy is focusing on significant value creation with a strong presence in the Delaware Basin a sub-basin of Permian where the company’s operations are spread across roughly 25,000 net acres. PDC Energy has done pretty well this year despite the coronavirus pandemic and is projecting 2021 free cash flow to be more than $900 million.

PDC Energy is also focusing on debt reduction. In order to strengthen its balance sheet further, PDC Energy is anticipating reducing its debt load by more than 40% in 2021.

Sunoco LP generates stable cashflows since it is a leading independent fuel distributor in the United States. With a growing energy infrastructure platform, Sunoco LP secures roughly 2,500 commercial customers.

Over the past 60 days, Sunoco LP has witnessed upward earnings estimate revisions for 2021 and 2022. Overall, with demand for traditional motor fuels to continue to remain in place, Sunoco LP is well placed to continue to generate stable cashflows.

Earthstone Energy is a leading explorer and producer, having strong footprint in prolific resources like Midland basin of west Texas and the Eagle Ford Trend of south Texas. Recently, Earthstone Energy entered into an accord to acquire Northern Delaware Basin assets for roughly $604 million. With the deal, Earthstone Energy will likely expand its presence in the Permian basin by over 35% to roughly 138,000 net acres.

Over the past 30 days, Earthstone Energy has witnessed upward earnings estimate revisions for 2021. So far this year, Earthstone Energy gained 116.1%, outpacing the surge of 105.4% of the composite stocks belonging to the industry.