Enterprise GP Holdings Has A Nice-Looking Pipeline

The Houston, Texas based Enterprise GP Holdings L.P. (EPE) is a provider of transportation and other services to the consumers and producers of natural gas and crude oil in the U.S. EPE is the owner of the general partner of Enterprise Products Partners L.P. (EPD) and was offered publicly from EPD on August 24, 2005.

As we have pointed out in prior research notes, investors with knowledge of history understand that in a gold rush sometimes it is the seller of shovels and providers of services that can make the most profits. This midstream services provider presently operates through its subsidiaries in four segments: NGL Pipelines and Services, Onshore Natural Gas Pipelines and Services, Offshore Pipelines and Services, and Petrochemical Services.

NGL (Natural Gas Liquid) Pipelines concentrates on storage facilities, operations of pipelines, processing of natural gas, and other services. The Onshore Natural Gas Pipelines branch utilizes onshore natural gas pipeline systems to gather and transport natural gas, as well as engaging in natural gas storage and leasing of its facilities. The Offshore Pipelines branch also gathers and transmits natural gas, although it operates through offshore pipeline systems. Finally, the Petrochemical Services business operates propylene fractionation facilities around Texas and Louisiana.

EPE has been making some waves in the media recently, with plans of growth, acquisitions, and partnerships. In November of last year, EPD, the company that EPE manages, made a key partnership with Exxon Mobil Corporation (XOM), to provide long-term services in Colorado. Later that month, their partner company, along with TEPPCO Partners (TPP) announced that a new pipeline looping project, one of the largest in terms of natural gas volumes in the U.S., began service in Wyoming. In December, the firm announced that it will expand EPD’s 48-mile refinery grade propylene [RGP] pipeline system between Texas City and Mont Belvieu, Texas.

With all of this blossoming, EPE, through the operations of EPD, is poised to continue prospering in the midstream services field. Its financials confirm some of this. For one, the stellar revenue growth of 27.18% and net income increase of 87.50% over the trailing twelve months are huge reasons for continued optimism.

A second reason for potential growth in the stock is its profitability. Even though its one year operating margin of 5.64% is behind the industry average of 9.94%, the return on equity [ROE] of 13.13% over the past twelve months shows significant promise.

Finally, the stock still appears to have room to appreciate in light of its exceptional growth. Evidence of this may be seen in its 12 month trailing price to earnings to growth [PEG] ratio of 0.39, which is below the industry average of 1.31. Although the firm is not in ideal financial health, its performance is certainly up to par for a company that went through a spin-off IPO less than a year and a half ago. With investment banks Lehman and Deutsche Bank writing research on the firm, continued corporate improvement should be well rewarded.

Tracking its stock price against the S&P 500, EPE compares poorly since its IPO. Looking carefully, as the company firms its independence, it progresses as evidenced by the last three months. Even with the index rising and energy prices fluctuating, the stock has outperformed the index. We look to continuing improvements as a spin-off.

Disclosure: Enterprise GP Holdings L.P. [EPE] is a constituent in the Clear Spin-Off index licensed for the Claymore/Clear Spin-Off ETF [AMEX:CSD]. Mr. Corn is CEO and founder of Clear Indexes LLC which publishes the index and he owns shares of the ETF: CSD. He does not directly own shares in [EPE].

EPE 1-yr chart