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Enterprise Products Stock Looks Cheap Now: A Smart Entry Point?
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Key Takeaways
Enterprise Products trades at 11.20x EV/EBITDA, below the industry average of 11.27x.
EPD's 50,000-mile network and inflation-linked contracts support stable cash flows.
Enterprise Products offers a 6.21% yield but carries higher debt and trails industry yield.
Enterprise Products Partners LP (EPD - Free Report) is trading at a trailing 12-month EV/EBITDA multiple of 11.20x, which is lower than the broader industry average of 11.27x. Enbridge Inc. (ENB - Free Report) and Kinder Morgan Inc. (KMI - Free Report) , two other midstream majors, are valued higher at 15.83x and 14.83x, respectively.
Image Source: Zacks Investment Research
Since EPD is undervalued, should investors jump into the stock immediately? Before deciding, it’s better to analyze EPD’s overall business environment first, even though the partnership generates stable fee-based revenues like ENB and KMI.
EPD’s Inflation-Linked Contracts & Growth Capital Pipeline
Enterprise Products' pipeline network spans more than 50,000 miles, transporting oil, natural gas and other commodities. The partnership also has more than 300 million barrels of liquid storage capacity, generating stable cash flows. Importantly, EPD’s business model is inflation-protected because almost 90% of its long-term contracts include a provision for increasing fees when the business environment becomes inflationary. This is how the midstream energy player is able to safeguard its cash flow generation in all business scenarios.
EPD is also expected to generate incremental cash flow from its $4.8 billion in key capital projects, which are either in service or set to come online.
Strong Focus on Returning Capital to Unit Holders
Due to the resilience of its business model, the partnership has been able to return capital to unitholders on an ongoing basis. Since its IPO, Enterprise Products has returned $62 billion to unitholders through both repurchases and distributions. EPD has increased distributions for 27 years consecutively. Thus, the partnership has become successful in keeping cash flow steady at all business cycles.
Should Investors Bet on the Stock Now?
Following the positive developments, EPD has risen 11% over the past six months, outperforming the industry’s 9%. Over the same time frame, Enbridge and Kinder Morgan have gained 7.6% and 18%, respectively.
Image Source: Zacks Investment Research
Investors should note that despite EPD's strong focus on returning capital, the partnership’s current distribution yield of 6.21% is lower than the industry’s 6.38%. Also, EPD has a significant exposure to debt capital compared to the composite stocks belonging to the energy sector.
Image Source: Zacks Investment Research
Thus, despite being undervalued and with all the positive developments in place, it is wise not to bet on the stock right away. But those who have already invested can retain the stock, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Enterprise Products Stock Looks Cheap Now: A Smart Entry Point?
Key Takeaways
Enterprise Products Partners LP (EPD - Free Report) is trading at a trailing 12-month EV/EBITDA multiple of 11.20x, which is lower than the broader industry average of 11.27x. Enbridge Inc. (ENB - Free Report) and Kinder Morgan Inc. (KMI - Free Report) , two other midstream majors, are valued higher at 15.83x and 14.83x, respectively.
Since EPD is undervalued, should investors jump into the stock immediately? Before deciding, it’s better to analyze EPD’s overall business environment first, even though the partnership generates stable fee-based revenues like ENB and KMI.
EPD’s Inflation-Linked Contracts & Growth Capital Pipeline
Enterprise Products' pipeline network spans more than 50,000 miles, transporting oil, natural gas and other commodities. The partnership also has more than 300 million barrels of liquid storage capacity, generating stable cash flows. Importantly, EPD’s business model is inflation-protected because almost 90% of its long-term contracts include a provision for increasing fees when the business environment becomes inflationary. This is how the midstream energy player is able to safeguard its cash flow generation in all business scenarios.
EPD is also expected to generate incremental cash flow from its $4.8 billion in key capital projects, which are either in service or set to come online.
Strong Focus on Returning Capital to Unit Holders
Due to the resilience of its business model, the partnership has been able to return capital to unitholders on an ongoing basis. Since its IPO, Enterprise Products has returned $62 billion to unitholders through both repurchases and distributions. EPD has increased distributions for 27 years consecutively. Thus, the partnership has become successful in keeping cash flow steady at all business cycles.
Should Investors Bet on the Stock Now?
Following the positive developments, EPD has risen 11% over the past six months, outperforming the industry’s 9%. Over the same time frame, Enbridge and Kinder Morgan have gained 7.6% and 18%, respectively.
Investors should note that despite EPD's strong focus on returning capital, the partnership’s current distribution yield of 6.21% is lower than the industry’s 6.38%. Also, EPD has a significant exposure to debt capital compared to the composite stocks belonging to the energy sector.
Thus, despite being undervalued and with all the positive developments in place, it is wise not to bet on the stock right away. But those who have already invested can retain the stock, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.