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Enterprise Products Stock: Attractive Valuation, But Is It Time to Buy?
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Key Takeaways
EPD trades at 11.07x EV/EBITDA, below the industry average and midstream peers.
Nearly 90% of EPD's long-term contracts can raise fees during inflation, supporting cash flows.
EPD has $6.5B in key projects ahead, but excess LPG export capacity could pressure fees.
Enterprise Products Partners LP (EPD - Free Report) is trading at a trailing 12-month EV/EBITDA multiple of 11.07x, which is lower than the broader industry average of 11.29x. Enbridge Inc. (ENB - Free Report) and Kinder Morgan Inc. (KMI - Free Report) , two other midstream majors, are valued higher at 15.48x and 13.98x, respectively.
Image Source: Zacks Investment Research
Since EPD is undervalued, should investors buy the stock immediately? Before deciding, it’s better to analyze EPD’s overall business environment, even though the partnership generates stable fee-based revenues like ENB and KMI.
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 $6.5 billion in key capital projects, which are yet to come online.
Image Source: Enterprise Products Partners LP
EPD’s Attractive Capital Return Framework
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 $65 billion to unitholders through both repurchases and distributions. EPD has increased distributions for 28 consecutive years. Thus, the partnership has become successful in keeping cash flow steady across all business cycles.
Is Now the Right Time to Invest in the Stock?
Following the positive developments, EPD has risen 24.1% over the past year, marginally underperforming the industry’s 24.8%. Over the same time frame, Enbridge and Kinder Morgan have gained 9.1% and 25.1%, respectively.
Image Source: Zacks Investment Research
On the flip side, the partnership, on its latest earnings call, noted that too much LPG export capacity may come online before demand catches up, which could push export fees lower. However, EPD is partly protected because about 90% of its LPG export capacity is already contracted.
Thus, despite being undervalued and with all the positive developments in place, it is wise not to bet on EPD 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.
View the Zacks #1 Rank List
Image: Bigstock
Enterprise Products Stock: Attractive Valuation, But Is It Time to Buy?
Key Takeaways
Enterprise Products Partners LP (EPD - Free Report) is trading at a trailing 12-month EV/EBITDA multiple of 11.07x, which is lower than the broader industry average of 11.29x. Enbridge Inc. (ENB - Free Report) and Kinder Morgan Inc. (KMI - Free Report) , two other midstream majors, are valued higher at 15.48x and 13.98x, respectively.
Since EPD is undervalued, should investors buy the stock immediately? Before deciding, it’s better to analyze EPD’s overall business environment, even though the partnership generates stable fee-based revenues like ENB and KMI.
EPD’s Inflation-Resilient Contracts & Growth Projects
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 $6.5 billion in key capital projects, which are yet to come online.
EPD’s Attractive Capital Return Framework
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 $65 billion to unitholders through both repurchases and distributions. EPD has increased distributions for 28 consecutive years. Thus, the partnership has become successful in keeping cash flow steady across all business cycles.
Is Now the Right Time to Invest in the Stock?
Following the positive developments, EPD has risen 24.1% over the past year, marginally underperforming the industry’s 24.8%. Over the same time frame, Enbridge and Kinder Morgan have gained 9.1% and 25.1%, respectively.
On the flip side, the partnership, on its latest earnings call, noted that too much LPG export capacity may come online before demand catches up, which could push export fees lower. However, EPD is partly protected because about 90% of its LPG export capacity is already contracted.
Thus, despite being undervalued and with all the positive developments in place, it is wise not to bet on EPD 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.