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Enterprise Products Partners LP (EPD - Free Report) is currently considered undervalued, trading at a 10.71x trailing 12-month enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA), which is below the broader industry average of 12.43x.
Image Source: Zacks Investment Research
While a discounted valuation can offer investors a potentially lucrative opportunity, it is crucial to examine whether the partnership is grappling with any internal challenges. A deeper analysis is necessary to assess whether EPD's lower valuation is warranted based on its fundamentals, growth prospects and current market conditions.
EPD’s $7B Development Pipeline and Compelling Yield
Enterprise Products, a top-tier North American midstream service provider, boasts a vast and diversified asset portfolio. This includes more than 50,000 miles of pipelines and a storage capacity of 300 million barrels. Shippers utilize these assets in long-term contracts to transport and store natural gas liquids, crude oil, refined products and petrochemicals. The partnership also has 14 billion cubic feet of natural gas storage capacity, securing stable fee-based revenues.
Additionally, EPD is set to generate additional fee-based earnings with $6.9 billion worth of major capital projects either currently in service or under construction. These project backlogs will not only secure stable cashflows but will also generate handsome unit-holder returns.
Supported by its stable and resilient business model, Enterprise Products has achieved 26 consecutive years of distribution hikes. The current distribution yield of the partnership stands at 6.2%, higher than 5.6% of the composite stocks belonging to the industry.
Distribution Yield
Image Source: Zacks Investment Research
Strategic Acquisitions and Automation to Aid EPD
EPD's strategic initiatives, including the acquisition of Piñon Midstream, have significantly enhanced its processing capabilities in the Delaware Basin and strengthened its NGL value chain. Key growth projects, such as the addition of two processing plants in the Permian — the Bahia pipeline and the Neches River NGL export terminal — are poised to drive substantial cash flow growth starting in 2025. Additionally, EPD’s adoption of advanced big data analytics and predictive technologies for pipeline optimization and maintenance has streamlined operations, reduced costs and improved profit margins, showcasing its commitment to operational excellence.
Evaluating the Potential in EPD’s Discounted Valuation
Moreover, the partnership’s robust asset network features an integrated and automated value chain, encompassing natural gas processing plants to export terminals, allowing the partnership to generate value at every stage of production.
Despite positive advancements, EPD's stock has lagged the industry, as shown in the price chart. Year to date, its units have gained 37.4%, underperforming the industry's composite stock growth of 46.7%. Among notable midstream companies, Kinder Morgan Inc (KMI - Free Report) outperformed EPD with a 68.4% gain, while Enbridge Inc (ENB - Free Report) lagged, achieving a 25.8% increase.
Year-To-Date Price Chart
Image Source: Zacks Investment Research
The underperformance may be partly attributed to delays in key projects, such as the Bahia pipeline, which encountered permitting issues that could hinder the partnership's ability to meet projected timelines. Additionally, proposed regulatory changes, including setback rules in New Mexico, may pose risks to operations in key regions, though the precise impact remains uncertain.
Furthermore, elevated growth capital expenditures, projected to range from $3.5 billion to $4 billion in 2025, could strain resources. This heightened spending may also reduce the partnership's short-term flexibility for shareholder returns, such as buybacks.
Despite facing challenges, the partnership’s resilient business model and attractive valuation might seem appealing. However, given the operational issues affecting its ethylene export unit, which could constrain current and future performance, investors may prefer to wait for greater clarity on the partnership's outlook before considering a purchase.
Image: Shutterstock
EPD Stock's Valuation Looks Attractive: Is it the Right Time to Buy?
Key Takeaways
Enterprise Products Partners LP (EPD - Free Report) is currently considered undervalued, trading at a 10.71x trailing 12-month enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA), which is below the broader industry average of 12.43x.
While a discounted valuation can offer investors a potentially lucrative opportunity, it is crucial to examine whether the partnership is grappling with any internal challenges. A deeper analysis is necessary to assess whether EPD's lower valuation is warranted based on its fundamentals, growth prospects and current market conditions.
EPD’s $7B Development Pipeline and Compelling Yield
Enterprise Products, a top-tier North American midstream service provider, boasts a vast and diversified asset portfolio. This includes more than 50,000 miles of pipelines and a storage capacity of 300 million barrels. Shippers utilize these assets in long-term contracts to transport and store natural gas liquids, crude oil, refined products and petrochemicals. The partnership also has 14 billion cubic feet of natural gas storage capacity, securing stable fee-based revenues.
Additionally, EPD is set to generate additional fee-based earnings with $6.9 billion worth of major capital projects either currently in service or under construction. These project backlogs will not only secure stable cashflows but will also generate handsome unit-holder returns.
Supported by its stable and resilient business model, Enterprise Products has achieved 26 consecutive years of distribution hikes. The current distribution yield of the partnership stands at 6.2%, higher than 5.6% of the composite stocks belonging to the industry.
Distribution Yield
Strategic Acquisitions and Automation to Aid EPD
EPD's strategic initiatives, including the acquisition of Piñon Midstream, have significantly enhanced its processing capabilities in the Delaware Basin and strengthened its NGL value chain. Key growth projects, such as the addition of two processing plants in the Permian — the Bahia pipeline and the Neches River NGL export terminal — are poised to drive substantial cash flow growth starting in 2025. Additionally, EPD’s adoption of advanced big data analytics and predictive technologies for pipeline optimization and maintenance has streamlined operations, reduced costs and improved profit margins, showcasing its commitment to operational excellence.
Evaluating the Potential in EPD’s Discounted Valuation
Moreover, the partnership’s robust asset network features an integrated and automated value chain, encompassing natural gas processing plants to export terminals, allowing the partnership to generate value at every stage of production.
Despite positive advancements, EPD's stock has lagged the industry, as shown in the price chart. Year to date, its units have gained 37.4%, underperforming the industry's composite stock growth of 46.7%. Among notable midstream companies, Kinder Morgan Inc (KMI - Free Report) outperformed EPD with a 68.4% gain, while Enbridge Inc (ENB - Free Report) lagged, achieving a 25.8% increase.
Year-To-Date Price Chart
The underperformance may be partly attributed to delays in key projects, such as the Bahia pipeline, which encountered permitting issues that could hinder the partnership's ability to meet projected timelines. Additionally, proposed regulatory changes, including setback rules in New Mexico, may pose risks to operations in key regions, though the precise impact remains uncertain.
Furthermore, elevated growth capital expenditures, projected to range from $3.5 billion to $4 billion in 2025, could strain resources. This heightened spending may also reduce the partnership's short-term flexibility for shareholder returns, such as buybacks.
Despite facing challenges, the partnership’s resilient business model and attractive valuation might seem appealing. However, given the operational issues affecting its ethylene export unit, which could constrain current and future performance, investors may prefer to wait for greater clarity on the partnership's outlook before considering a purchase.
Those who already own the stock should hold on to it. The stock carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.