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Why Hold Strategy is Apt for Enterprise Products (EPD) Now
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Enterprise Products Partners LP (EPD - Free Report) is a leading midstream energy player with lower exposure to volume and price risks. For 2022 and 2023, the partnership is likely to see earnings growth of 17.6% and 1.3%, respectively.
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. It generates stable fee-based revenues from its extensive pipeline network that spreads across more than 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 more than 260 million barrels of NGL, petrochemical, refined products and crude oil. These assets can also hold 14 billion cubic feet of natural gas. Moreover, Enterprise Products has $5.5 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 0.52 is lower than the industry’s 0.53. 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 $3.3 billion, which incorporates unrestricted cash along with available borrowing capacity under its revolving credit facilities.
Risks
Enterprise Products has several assets that have been providing midstream services for many years. This has raised the possibility of investing massive maintenance capital to maintain those infrastructures. Thus, in the future, Enterprise Products could increase maintenance or repair expenses.
A slowdown in drilling activities, as upstream players mainly focus on stockholder returns rather than boosting output, is hurting production. This is affecting the demand for transportation and storage demand to some extent.
Marathon Petroleum is a well-known name in the downstream space and is the operator of the largest refining system in the nation. It has a strong focus on returning capital to shareholders. Over the past 30 days, Marathon Petroleum has witnessed upward earnings estimate revisions for 2022 and 2023.
Precision Drilling Corporationis a well-known name in the energy space for providing its clients access to an extensive fleet of Super Series drilling rigs. Its services also include offering well service rigs. With high commodity prices, demand for PDS’ drilling rigs was probably favorable, leading to the stock skyrocketing 106.9%.
NexTier Oilfield Solutionsis also a well-known U.S. land oilfield service player. With higher exploration and production by upstream companies, demand for NexTier Oilfield’s diverse set of well completion and production services was probably handsome. So far this year, the has stock gained more than 150%.
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Why Hold Strategy is Apt for Enterprise Products (EPD) Now
Enterprise Products Partners LP (EPD - Free Report) is a leading midstream energy player with lower exposure to volume and price risks. For 2022 and 2023, the partnership is likely to see earnings growth of 17.6% and 1.3%, respectively.
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. It generates stable fee-based revenues from its extensive pipeline network that spreads across more than 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 more than 260 million barrels of NGL, petrochemical, refined products and crude oil. These assets can also hold 14 billion cubic feet of natural gas. Moreover, Enterprise Products has $5.5 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 0.52 is lower than the industry’s 0.53. 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 $3.3 billion, which incorporates unrestricted cash along with available borrowing capacity under its revolving credit facilities.
Risks
Enterprise Products has several assets that have been providing midstream services for many years. This has raised the possibility of investing massive maintenance capital to maintain those infrastructures. Thus, in the future, Enterprise Products could increase maintenance or repair expenses.
A slowdown in drilling activities, as upstream players mainly focus on stockholder returns rather than boosting output, is hurting production. This is affecting the demand for transportation and storage demand to some extent.
Stocks to Consider
Better-ranked players in the energy space include Marathon Petroleum Corporation (MPC - Free Report) , Precision Drilling Corporation (PDS - Free Report) and NexTier Oilfield Solutions Inc. . All the stocks carry a Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Marathon Petroleum is a well-known name in the downstream space and is the operator of the largest refining system in the nation. It has a strong focus on returning capital to shareholders. Over the past 30 days, Marathon Petroleum has witnessed upward earnings estimate revisions for 2022 and 2023.
Precision Drilling Corporationis a well-known name in the energy space for providing its clients access to an extensive fleet of Super Series drilling rigs. Its services also include offering well service rigs. With high commodity prices, demand for PDS’ drilling rigs was probably favorable, leading to the stock skyrocketing 106.9%.
NexTier Oilfield Solutionsis also a well-known U.S. land oilfield service player. With higher exploration and production by upstream companies, demand for NexTier Oilfield’s diverse set of well completion and production services was probably handsome. So far this year, the has stock gained more than 150%.