We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Enterprise Products Gains 24.3% in a Year: Should You Buy or Exit?
Read MoreHide Full Article
Key Takeaways
Enterprise Products has rallied 24.3% in a year, trailing the industry's 31.8% gain amid valuation concerns.
EPD's fee-based model and inflation-protected contracts support stable cash flows & sustainable distributions.
EPD's growth projects support expansion, but its higher valuation to some peers warrants investor caution.
Enterprise Products Partners LP (EPD - Free Report) is a leading player in North America’s midstream energy space with an extensive asset network for the transportation and storage of crude oil, natural gas, natural gas liquids (NGLs), petrochemicals and refined products.
Over the past year, Enterprise Products units have rallied 24.3% compared with the industry’s 31.8% growth. Its peers, Western Midstream Partners (WES - Free Report) and Energy Transfer LP (ET - Free Report) , have risen 11.2% and 24.6%, respectively, during the same time frame. While price performance indicates a stock's attractiveness to some extent, it would be wiser to closely examine the partnership’s business and overall operating environment before offering any investment advice.
Image Source: Zacks Investment Research
EPD’s Contractual Business Model Ensures Stable Cash Flows
Enterprise Products owns and operates a pipeline network spanning more than 50,000 miles that transports crude oil, natural gas, NGLs and refined products across North America. Its integrated midstream network also includes over 300 million barrels (MMBbls) of liquids storage, 27 fractionators, 21 deepwater docks and much more. The partnership generates fee-based revenues primarily through long-term contracts, which keep its earnings stable and less vulnerable to fluctuations in commodity prices.
The contractual business allows EPD to generate predictable cash flows across business cycles. Notably, the partnership has highlighted that almost 90% of its long-term contracts include an escalation provision that protects its cash flows and distributions under inflationary business environments. These stable cash flows allow the partnership to sustain its distribution growth through various market cycles.
Investments in Energy Infrastructure Support Growth
Enterprise Products offers a low-risk path to gain exposure to the rising demand for natural gas and NGL value chain. EPD expects the demand for liquid hydrocarbons, particularly petrochemical demand, to increase significantly in the upcoming years. The partnership is expected to benefit from the rising global liquid hydrocarbons demand. Additionally, the global demand for liquefied petroleum gas (LPG) is expected to remain strong, driven by heating and other needs in non-OECD countries.
The prolonged conflict in the Middle East continues to drive demand for U.S. hydrocarbons, particularly NGLs, petrochemicals and refined products. EPD is expanding its infrastructure to capitalize on growing demand for U.S. hydrocarbons. The expansion of its LPG export facilities at the Houston Ship Channel marine terminal is expected to increase its total LPG loading capacity to 1.1 million barrels per day. Additionally, a new natural gas processing plant in the Midland Basin should strengthen the partnership's ability to meet rising demand. Enterprise Products highlighted that the United States is one of the largest exporters of LPG and the partnership plans to capitalize on the growing demand for U.S.-based feedstock.
The partnership has major capital projects worth $6.3 billion under development, including the Permian Basin gathering and treating facilities, the expansion and 92-mile extension of the Bahia pipeline and the EHT LPG expansion. These projects are expected to be placed into service through 2029. These growth projects are aligned with favorable energy market fundamentals, including rising global demand for hydrocarbon liquids and growing Permian Basin production of oil and natural gas. These factors are expected to generate sustained demand for EPD’s midstream services, aiding its earnings and cash flows and improving the utilization of its energy infrastructure.
Image Source: Enterprise Products Partners L.P.
Valuation Snapshot
The valuation snapshot indicates that EPD is currently trading at a discount compared to the industry. This is reflected in its trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 10.32X compared with the broader industry average of 11.16X. However, it is currently trading relatively higher compared to its peers, WES and ET, which are trading at 9.16X and 10.26X trailing 12-month EV/EBITDA, respectively.
Image Source: Zacks Investment Research
Final Word
Enterprise Products benefits from its extensive midstream network, which generates stable cash flows from its long-term, inflation-protected contracts. EPD’s stable free cash flow generation should support sustainable distribution growth.
The partnership is well-positioned to benefit from rising global demand for natural gas, NGLs and other liquid hydrocarbons. Additionally, ongoing investments in pipeline, processing and LPG export infrastructure, including the Houston Ship Channel expansion, are expected to strengthen its ability to capitalize on the growing demand for U.S. hydrocarbons.
However, its $6.3 billion capital investment program represents a significant spending commitment, while its valuation, although below the industry average, remains relatively higher than some peers. As such, investors should wait for a more opportune moment to own EPD, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
View the Zacks #1 Rank List
Image: Bigstock
Enterprise Products Gains 24.3% in a Year: Should You Buy or Exit?
Key Takeaways
Enterprise Products Partners LP (EPD - Free Report) is a leading player in North America’s midstream energy space with an extensive asset network for the transportation and storage of crude oil, natural gas, natural gas liquids (NGLs), petrochemicals and refined products.
Over the past year, Enterprise Products units have rallied 24.3% compared with the industry’s 31.8% growth. Its peers, Western Midstream Partners (WES - Free Report) and Energy Transfer LP (ET - Free Report) , have risen 11.2% and 24.6%, respectively, during the same time frame. While price performance indicates a stock's attractiveness to some extent, it would be wiser to closely examine the partnership’s business and overall operating environment before offering any investment advice.
Image Source: Zacks Investment Research
EPD’s Contractual Business Model Ensures Stable Cash Flows
Enterprise Products owns and operates a pipeline network spanning more than 50,000 miles that transports crude oil, natural gas, NGLs and refined products across North America. Its integrated midstream network also includes over 300 million barrels (MMBbls) of liquids storage, 27 fractionators, 21 deepwater docks and much more. The partnership generates fee-based revenues primarily through long-term contracts, which keep its earnings stable and less vulnerable to fluctuations in commodity prices.
The contractual business allows EPD to generate predictable cash flows across business cycles. Notably, the partnership has highlighted that almost 90% of its long-term contracts include an escalation provision that protects its cash flows and distributions under inflationary business environments. These stable cash flows allow the partnership to sustain its distribution growth through various market cycles.
Investments in Energy Infrastructure Support Growth
Enterprise Products offers a low-risk path to gain exposure to the rising demand for natural gas and NGL value chain. EPD expects the demand for liquid hydrocarbons, particularly petrochemical demand, to increase significantly in the upcoming years. The partnership is expected to benefit from the rising global liquid hydrocarbons demand. Additionally, the global demand for liquefied petroleum gas (LPG) is expected to remain strong, driven by heating and other needs in non-OECD countries.
The prolonged conflict in the Middle East continues to drive demand for U.S. hydrocarbons, particularly NGLs, petrochemicals and refined products. EPD is expanding its infrastructure to capitalize on growing demand for U.S. hydrocarbons. The expansion of its LPG export facilities at the Houston Ship Channel marine terminal is expected to increase its total LPG loading capacity to 1.1 million barrels per day. Additionally, a new natural gas processing plant in the Midland Basin should strengthen the partnership's ability to meet rising demand. Enterprise Products highlighted that the United States is one of the largest exporters of LPG and the partnership plans to capitalize on the growing demand for U.S.-based feedstock.
The partnership has major capital projects worth $6.3 billion under development, including the Permian Basin gathering and treating facilities, the expansion and 92-mile extension of the Bahia pipeline and the EHT LPG expansion. These projects are expected to be placed into service through 2029. These growth projects are aligned with favorable energy market fundamentals, including rising global demand for hydrocarbon liquids and growing Permian Basin production of oil and natural gas. These factors are expected to generate sustained demand for EPD’s midstream services, aiding its earnings and cash flows and improving the utilization of its energy infrastructure.
Image Source: Enterprise Products Partners L.P.
Valuation Snapshot
The valuation snapshot indicates that EPD is currently trading at a discount compared to the industry. This is reflected in its trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 10.32X compared with the broader industry average of 11.16X. However, it is currently trading relatively higher compared to its peers, WES and ET, which are trading at 9.16X and 10.26X trailing 12-month EV/EBITDA, respectively.
Image Source: Zacks Investment Research
Final Word
Enterprise Products benefits from its extensive midstream network, which generates stable cash flows from its long-term, inflation-protected contracts. EPD’s stable free cash flow generation should support sustainable distribution growth.
The partnership is well-positioned to benefit from rising global demand for natural gas, NGLs and other liquid hydrocarbons. Additionally, ongoing investments in pipeline, processing and LPG export infrastructure, including the Houston Ship Channel expansion, are expected to strengthen its ability to capitalize on the growing demand for U.S. hydrocarbons.
However, its $6.3 billion capital investment program represents a significant spending commitment, while its valuation, although below the industry average, remains relatively higher than some peers. As such, investors should wait for a more opportune moment to own EPD, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.