Units of Enterprise Products Partners L.P. (EPD - Free Report) have rallied 11.4% year to date, significantly outperforming the 1.6% collective gain of stocks belonging to the industry and the S&P 500’s 4.2%.
Enterprise Products, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $63.8 billion. The company’s average volume of units traded in the last three months is around 6.2 million.
We expect the company to post earnings growth of 20.5% through 2018. Let's take a look at the factors that are driving this midstream infrastructure provider.
The partnership’s earnings outlook is backed by positive earnings estimate revision for 2018 and 2019. The Zacks Consensus Estimate for 2018 earnings has been revised upward from $1.54 per unit to $1.59 over the past 60 days. The Zacks Consensus Estimate for 2019 has also been revised to $1.71 from $1.67.
A low-risk business model and long-term pipeline contracts will likely support the partnership’s strong earnings outlook. Usually operating on long-term contracts of 15-20 years, the oil and gas infrastructure provider’s distribution growth prospects look bright despite the low yield relative to peers. However, the partnership’s recent decision to slow down distribution payouts might upset investors.
Notably, the integrated midstream energy firm’s businesses are not limited to connecting producers and consumers of hydrocarbons. In fact, unlike many other midstream players, Enterprise Products is expanding its midstream operations to capitalize on the growing feedstock demand in the petrochemical plants of domestic and international markets.
One of the main ingredients used for the production of plastic is ethylene. Most of the ethylene crackers around the globe are using ethane to make plastic instead of naphtha. This is because naphtha is produced from expensive crude while ethane is made from a cheaper source — natural gas.
Enterprise Products is capitalizing on the business trend through ownership in several NGL fractionation facilities that process streams of mixed NGL to products like ethane, propane and butane.
On top of that, more than 93% of Enterprise Products’ debt portfolio carries a fixed interest rate, which reduces threats stemming from a possible rate hike.
Stocks to Consider
A few better-ranked stocks in the energy space are Anadarko Petroleum Corporation (APC - Free Report) , Eclipse Resources Corporation (ECR - Free Report) and Wildhorse Resource Development Corporation (WRD - Free Report) . While Anadarko carries a Zacks Rank #2 (Buy), Eclipse and Wildhorse sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
We expect Anadarko Petroleum to witness year-over-year earnings growth of 229.6% in 2018.
Eclipse is expected to record revenue growth of 13.5% through 2018.
Wildhorse will likely see year-over-year earnings growth of 309.3% in 2018.
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