Entering text into the input field will update the search result below

Don't Miss This Buy Signal From Enterprise Product Partners

Summary

  • Enterprise Product Partners announced a unit repurchase program that appears to have gone unnoticed by the market.
  • Shares yield close to 8%.
  • Insiders are buying the stock.
  • Enterprise Product Partners is a conviction buy.
  • Friendly reminder that the company issues a K-1 tax form.
  • Looking for a portfolio of ideas like this one? Members of Best Of Breed get exclusive access to our model portfolio. Get started today »

Enterprise Product Partners (NYSE:EPD) just can’t catch a break. The company continues to report record numbers, but shares nonetheless trade at a blistering yield near 8%. The pessimism surrounding volatility in the energy markets seems to have prevented investors from recognizing the significant policy shift in capital allocation taking place at EPD. The company’s apparent newfound appreciation for share repurchases may drive strong forward returns. I rate the shares a conviction buy.

Firing On All Cylinders

EPD is one of the largest fully integrated midstream companies in North America. In simple terms, the company makes money by using its 50,000 miles of pipelines to transport natural gas, natural gas liquids, crude oil, petrochemicals, and refined products.

(Source: 2019 December Presentation)

As we can see above, EPD is strategically located primarily in the Permian Basin, arguably the most important region for energy production in the United States. It pays to have top-tier strategic positioning.

For 2019, the company reported distributable cash flow ("DCF") of $6.6 billion, an 11% increase over 2018. This covered its distribution 1.7 times - one of the highest coverage ratios in the sector. EPD attributed much of its growth to its success in adding bolt-on projects to its integrated system backed by long-term contracts with creditworthy customers. When you’re located in a high demand region, it’s easy to keep adding to your pipelines at accretive rates.

DCF per unit grew from $2.74 to $3.01 for the full year. Free cash flow (calculated after growth investments) grew from $2.00 billion to $2.47 billion, and is now almost covering the $3.8 billion in distributions. While I’d like to say that this is a standout quarter, in reality, EPD has been reporting fabulous numbers for many years, if not decades. Strong numbers aren’t unusual for the best of breed. I’m excited about something else: EPD did disclose new guidance, which, in my opinion, could be a game changer.

Invest In Best Of Breed

Some investors start by looking at valuation with a stock screener, and from these cheap companies try to find any that they can justify buying. I instead start with an assessment of quality, and only from the highest quality companies do I begin to search for value. My goal is to not only beat the market but to also do so with a high success rate.

Subscribers get access to the Best of Breed Portfolio, the most undervalued best of breed names in the market.

Become a Best of Breed investor today

This article was written by

Julian Lin profile picture
28.44K Followers
High conviction investment ideas in the winners of tomorrow.

Julian Lin is a top ranked financial analyst. Julian Lin runs Best Of Breed Growth Stocks, a research service uncovering high conviction ideas in the winners of tomorrow. 

Get access to his highest conviction ideas here


Analyst’s Disclosure: I am/we are long EPD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

DISCLAIMER: Julian Lin is not a Registered Investment Advisor or Financial Planner. While the information in his articles and his comments on SeekingAlpha.com or elsewhere may seem like financial advice, it is not, and it is provided for information purposes only. Do your own research or seek the advice of a qualified professional. You are responsible for your own investment decisions.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.