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Enterprise Products Partners L.P. (EPD), a Houston-based master limited partnership, owns and operates natural gas liquids, NGL, related businesses of Enterprise Products Company, EPCO, providing midstream energy services in North America. With increasing distribution and well managed capital structure, EPD remains a top MLP for investors to review.

Consistent Distribution Growth

EPD has consistent distribution growth. Since EPD's IPO, there were 44 distribution increases with 35 consecutive quarters where EPD had increased the distribution. EPD even increased distribution during the financial crises in 2008 and 2009.

Capital Projects

In 2012, EPD completed 26 major capital projects (total cost about $3B). EPD was about 3.3% under budget and had sold some assets in 2012. EPD sold the remaining energy transfer equity assets for about $1.1B and re-invested the proceeds in the organic growth projects.

Operation and Financial Highlights

For 2012, EPD had record natural gas NGL pipeline volumes and fractionation volumes, whereas the fee-based natural gas processing volumes had increased quite significantly. EPD has a record gross margin of $4.4B with distributable cash flow of $4.1B, including the $1.2B proceeds from the sale of assets. EPD had a healthy distribution coverage (5.6% increase in cash distribution, 1.3 times distribution coverage, excluding the proceeds from the sales of assets). $700M distributable cash flow was retained for reinvestment purpose.

CapEx and Rating Upgrades

For 2013, the CapEx is expected to increase to $4.2B (up from $4B) to spend on organic growth projects. EPD had received the ratings upgrade from S&P and Moody's. In the capital market, EPD was oversubscribed by over two times with strong investor support in both the equity and the debt offerings.

Analysts' Calls and Estimates

On April 19, 2013, Wunderlich reiterated a buy rating and increased its target price to $66 from $61 for EPD. On April 18, 2013, Deutsche Bank also reiterated a buy rating and increased its target price to $70 from $68 for EPD. Lastly, on April 17, Global Hunter Securities initiated coverage on EPD with an accumulate rating and a price target of $53.00.

Analysts currently have a mean target price of $63.07 for EPD, suggesting 3.78% upside potential based on the closing price of $60.77 on April 19, 2013. Analysts are estimating an EPS of $0.65 with revenue of $11.61B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $2.73 with revenue of $47.45B, which is 11.60% higher than 2012.

Fundamentally, EPD's key stats will be compared to its peers in the industry of oil & gas midstream, including Kinder Morgan Energy Partners (KMP) and Williams Partners LP (WPZ), to see where it stands.

Enterprise Products Partners

Kinder Morgan Energy

Williams Partners

Industry Average

Cap Size

$55.13B

$33.94B

$20.94B

N/A

Closing Price (April 19, 2013)

$60.77

$90.95

$52.62

N/A

Revenue Growth (3 Year Average)

18.6

7.3

16.7

7.1

Operating Margin, %, ttm

7.2%

27.1%

20.7%

11.2%

Net Margin, %, ttm

11.4%

-0.9%

16.8%

5.3%

Debt/Equity

1.1

1.4

0.9

1.4

Forward P/E

20.5

28.2

21.2

14.3 (S&P 500's average)

Cash Distribution

$0.67 per unit, payable on May 7, 2013

$1.30 per unit, payable on May 15, 2013

Last distribution was $0.8275 per unit, paid on February 8, 2013.

N/A

Source: Morningstar

EPD has the highest revenue growth (three-year average) among three companies. EPD also has a higher net margin comparing to KMP and the industry average. EPD also has a healthy debt/equity ratio of 1.1, which is below the industry average of 1.4. From the valuation perspective, EPD is undervalued compared with KMP and WPZ with a lower Forward P/E of 20.5.

Technically, EPD is on the long-term uptrend since December, 2012, and is currently trading above its 50-day and 200-day MA, as seen from the chart below.

(click to enlarge)

Source: Finviz.com

Bottom Line

With a healthy distribution coverage and increasing distribution (35 consecutive quarters), EPD continues to be a strong cash flow generator. EPD remains a top-tier MLP in all market conditions. Investors can also review the following ETFs to gain exposure to EPD:

  • Alerian MLP ETF (AMLP), 9.35% weighting
  • MLP ETF (MLPA), 4.92% weighting
  • Sustainable North American Oil Sands ETF (SNDS), 2.76% weighting

Note: Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.

Source: Enterprise Products: With 35 Consecutive Distribution Quarters It's Solid And Sound