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Enterprise Products (EPD) Up 16.5% YTD: More Growth Ahead?

Enterprise Products Partners L.P. EPD stock has jumped 16.5% in the year-to-date period. Its strategic acquisitions are expanding the fully integrated midstream portfolio, which is appreciated by investors. Based in Houston, TX, the partnership — with a market cap of $49.8 billion — is among the leading midstream energy players in North America.

Can It Retain Momentum?

The answer is yes and before we get into the details, let us show you how its estimates for 2021 stand. The Zacks Consensus Estimate for 2021 earnings per share stands at $2.17, signaling a 2.8% increase from last year’s figure of $2.11. The consensus estimate for 2021 revenues is pegged at $36.7 billion, indicating a rise from $27.2 billion in 2020. It beat earnings estimates thrice and met once in the past four quarters, with an average surprise of 8%.

Now let’s delve into what’s driving the Zacks Rank #3 (Hold) stock.

Enterprise Products has an extensive network of pipelines that spreads over nearly 50,000 miles and are linked to all prospective shale plays in the United States. Also, it has a massive storage capacity of 260 million barrels of liquids and 14 billion cubic feet of natural gas. Further, the partnership boasts a fully integrated midstream portfolio with 19 gas processing units, 25 fractionators and 11 condensate distillation facilities. These extensive networks of pipelines and other midstream facilities provide it with stable fee-based revenues.

Almost 80% of Enterprise Products’ pipeline contracts with shippers have been extended for 15-20 years, which should help the partnership generate steady cash flow for unitholders. Enterprise Products is expanding midstream operations to capitalize on the growing feedstock demand in petrochemical plants in domestic and international markets, which is impressive. The partnership’s acquisition of NOVA Chemicals’ subsidiary is expected to boost olefins footprint and make it a major player for physically settled futures markets. This will likely boost the partnership’s profitability from its trading arm.

Since its IPO in 1998, Enterprise Products has invested a hefty sum of $26 billion in major acquisitions. The partnership has spent another $42 billion for organic growth projects that have been contributing to cash flow. It is also well positioned to generate additional cash flow from growth capital projects under construction worth $3.1 billion. Of the total amount, $1.1 billion worth of assets are scheduled to come online in second-half 2021.

The partnership is strongly committed to return cash to shareholders. After raising distributions for more than 22 years at a 7% CAGR, the partnership is well poised to continue hiking distributions in the coming years, backed by a stable business model. It has a $2-BILLION share repurchase program in place for 2021, of which $312 million has been utilized through Jun 30, 2021.

Risks

There are a few factors that are holding back the stock from reaching complete potential. As of Jun 30, 2021, its outstanding total debt principal was $28.8 billion. In comparison, Enterprise Products’ consolidated liquidity amounted to $5.4 billion, which included cash and cash equivalents of only $404.5 million, and an available borrowing capacity. Hence, its debt-laden balance sheet can lead to restriction of financial flexibility.

The partnership is expected to lower growth capital investments from 2020 levels, going forward. As such, it is likely to miss the opportunity of earning incremental fee-based revenues in the future. Nevertheless, we believe that its systematic and strategic plan of action will drive long-term growth.

Stocks to Consider

Some better-ranked stocks from the energy space include Suburban Propane Partners, L.P. SPH, SM Energy Company SM and Comstock Resources, Inc. CRK, each having a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Suburban Propane’s bottom line for 2021 is expected to rise 62.9% year over year.

SM Energy’s bottom line for 2021 is expected to surge 187% year over year.

The Zacks Consensus Estimate for Comstock Resources’ earnings for 2021 is pegged at $1.10 per share, signaling a major improvement from the year-ago figure of 23 cents.


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