Enterprise Products Partners LP (NYSE:EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLS), crude oil, refined products, and petrochemicals in the US, Canada, and the Gulf of Mexico (Yahoo Finance).
Its Seaway pipeline reversal from Cushing, Oklahoma to the Texas gulf coast opened for business in May. It is 50% partner with Enbridge (NYSE:ENB) in this venture. EPD subsequently announced that it may bring the first expansion of the Seaway pipeline online in Q4 2012. Earlier projections had been for Q1 2013. This extra 250,000 bpd in capacity will be completely booked as Cushing is overflowing with oil at this time. Further, EPD just announced the opening of its Phase I Eagle Ford oil pipeline. It has begun accepting deliveries. This is a 350,000 bpd pipeline that moves oil 147 miles from Wilson County to Sealy, Texas, where EPD has its huge ECHO crude oil terminal. This is still under construction. When it is done it will provide access to approximately 4 million bpd of refining capacity. The Phase II of the Eagle Ford pipeline will extend it a further 80 miles into the Eagle Ford to Gardendale. This is expected to be complete in Q1 of 2013.
All these things stand to give EPD a nice earnings boost in the near term. They also will help EPD diversify its pipeline infrastructure, which has become perhaps too dependent on NGL pipelines and services (56%). These should help add to the dividend in the near term. This could translate into a stock price increase.
Everyone knows that natural gas prices have fallen dramatically recently. Fewer people know that the consequent rush to concentrate more on NGL E&P by developers has led to or is leading to a glut in NGLs. For instance, the price of propane has dropped nearly 50% in the last year. Is there danger of this market imploding? No, there doesn't seem to be. Many of the derivative products such as ethylene and propylene are currently being produced from crude oil (naphtha based) in most worldwide refineries. When the US can make these from NGLs, which cost half as much or less, the US manufacturers have a decided advantage. In other words there should be a huge export market for these products. Temporarily the refinery infrastructure as well as the necessary pipelines are still often in the planning phase. EPD announced in Jan. 2012 2012 that it had received sufficient transportation commitments to support the building of a 1,230 mile Appalachia to Texas pipeline (the "ATEX Express"). This pipeline will transport ethane (NGL) from the Marcellus and Utica shale plays to the US Gulf Coast. This is expected to begin operations in Q1 of 2014.
EPD plans a further 450,000 bpd expansion of the Seaway pipeline beyond the 250,000 bpd expansion mentioned above. The target date for this is 2014. EPD will construct a 149 mile crude gathering pipeline to serve the Lucius oil and gas field in the southern Keathley Canyon area of the deepwater central Gulf of Mexico. The SEKCO Oil Pipeline is expected to begin service by mid-2014.
EPD has consistently grown its gross operating margin from $1.8B in 2006 to $3.9B in 2011. During that time it has grown its declared distributions (dividend) from $1.83 in 2006 to $2.44 in 2011. It currently has billions of dollars in growth projects under construction. Plus it has a history of bringing these projects in under budget. It has a CAGR of 34.8% for total assets growth, which is truly outstanding. Your money in this company does not stand idly by. EPD has a total return of 1,459% since Dec. 31, 1998. The S&P500 does not even begin to compare to EPD with a total return of less than 50% during that time frame.
EPD trades at a quite reasonable PE of 18.61 (FPE of 18.27) for its growth rate. It has a five year EPS growth rate per annum of 22.93%. Its FY2012 and FY2013 average analysts' EPS estimates have been going up in the last three months, as many other companies' estimates have gone down. Plus it pays a hefty $2.51/share dividend (5.15%). Even if this stock gets pushed down due to a market pullback or a world economic slowdown, it will pay you better than most bonds just to hold it. With a secular growth story in energy demand due to increasing emerging market demand, virtually everyone is sure that energy prices will continue to go up longer term. Furthe,r much of EPD's business is in fee based services, which are more immune to commodities price fluctuations. Don't forget the total return of 1,459% since Dec. 31, 1998. EPD will not only pay you great dividends over time, it will pay you with growth. EPD's assets will protect you against inflation much better than bonds will. Still it is nice to do as well or better than most bonds on the dividend payments alone. EPD is a large stable company with a market cap of $43.11B and an enterprise value of $57.80B. It has investment grade bond ratings (Baa2/BBB/BBB by Moody's/Fitch/S&P). There is little not to like about EPD.
On top of all of the above, the technical picture looks promising. EPD has been beaten down from its recent high of $52.67. It bounced off its 200-day SMA twice at about $46.23 and $47.63, and it seems to be on an upward track. The recent fundamental news should help EPD to remain on that upward track, although there is no guarantee with the current financial crisis in Europe. The two year chart of EPD illustrates the above technical situation.
The slow stochastic sub chart shows that EPD is neither oversold nor overbought. This means it can be bought safely at its current price. Still with the ugly economic situation in Europe and a deteriorating situation worldwide, averaging in is a good strategy.
NOTE: Much of the fundamental fiscal data not provided by EPD is from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EPD over the next 72 hours.