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Where Will Enterprise Products Partners Stock Be In 5 Years? Former Bear Upgrades The Stock


  • Enterprise Products Partners has surged 22% since I sold the stock.
  • Yet in spite of that strong performance, I am upgrading my view to a buy rating.
  • The strong commodity pricing environment may help improve the credit profile of its customers.
  • The stock yields 7.2% and is now fully covered by free cash flow.
  • Looking for a portfolio of ideas like this one? Members of Best Of Breed get exclusive access to our model portfolio. Learn More »
Oil Refinery And Pipeline In Desert During Sunset

imaginima/iStock via Getty Images

Enterprise Products Partners (NYSE:EPD) has not seen its stock soar like many other energy stocks because it does not have the same torque to higher energy prices. Yet in exchange, the company provides greater stability due to its fee-based cash flows. With

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This article was written by

Julian Lin profile picture

Julian Lin is a financial analyst. He finds undervalued companies with secular growth that appreciate over time. His approach is to look for companies with strong balance sheets and management teams in sectors with long growth runways.

Julian is the leader of the investing group Best Of Breed Growth Stocks where he only shares positions in stocks which have a large probability of delivering large alpha relative to the S&P 500. He also combines growth-oriented principles with strict valuation hurdles to add an additional layer to the conventional margin of safety. Features include: exclusive access to Julian's highest conviction picks, full stock research reports, real-time trade alerts, macro market analysis, individual industry reports, a filtered watchlist, and community chat with access to Julian 24/7. Learn more.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. 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.

I am long all holdings of the Best of Breed portfolio.

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.

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Comments (65)

rickevantodd profile picture
Thank you for your article and changing your position, as the facts changed. Normally not seen!
An interesting point I had not thought of, regarding EPD's pipeline users taking advantage of high oil and gas prices to lower debt and risk, thereby benefitting EPD as well. Thanks.

Long since 2016, and sorry I didn't add more after the COVID crash when yield was 13%. My YOC is around 10% and EPD is a long-term hold for income and any capital appreciation is gravy for me. Well aware that fossil fuels face climate change headwinds despite the current jump in prices and as you note, appreciation will be modest as a result. But this is a well-run company that has garnered trust, which is more than can be said for other MLPs.
@RealRural I don’t understand your first paragraph. Do you mean that in a time of high prices, E&P guys will maximize volumes through pipelines?
rickevantodd profile picture
@reganbaha I think the commenter meant that with high oil prices the customers are getting stronger which, in turn, makes EPD stronger.
asg01 profile picture
Exactly my take on the intent of that statement. And, I agree.
Julian, thanks. Why to consider EPD? Isn't ET having much better upside, div wise, as well as a capital grows?
Julian I just filed my tax forms today, long term CPA warned me again about
the danger of stocks this year, he thinks maybe I should take my winnings and
go to cash. I don’t, I trust him implicitly as a tax expert but all CPA’S must be
linear thinkers this period is going to kill many companies, hurt everyone as
Stagflation accelerates as he knows. The problem is cash is the most dangerous investment other than calling debt(Bonds, Loans, Lenders etc.) an asset or low or no profit companies. So what to do, I started preparing for Stagflation in 2020 one of my first choices was EPD as 2021 progressed I grew
it to by far my largest holding and sold wonderful stocks and ones I expected to suffer, by 2022 I had my Stagfolio built. It is counterintuitive to all rules and absolutely any Expert couldn’t do it. Why did I put so much of my wife’s income in the hands of EPD and a few similar hard assets is easy.
In 2021 I returned 9% on my Basis and will have returns over 10% in 2022 several of my holdings have already announced increases for the upcoming
distributions. Of course EPD will increase in January for the 24th year in a row.
This is the punch line my tax on many thousands of new dollars I received
in 2021 was ZERO and all my portfolio is TAXABLE.
I explained to my wife after our meeting the reason she should not fear the
future which is years of hurt even if her portfolio decreases just add more
units to her holdings, buy more income enjoy life. We are able to reinvest everything if we needed too but we take out a nice amount of cash to buy wants and help others. Why fight the market when EPD is a perfect
Stagflation choice. The following Stagflation parameters all fit EPD.
1. Sells must have products at great margins with not only enough cash flow to distribute to Partners but enough left over to buy or build more real world assets.
2. Very safe long term fixed debt at a low rate!
3. Deals in Billions and has very high revenue per employee (Many good Companies will suffer, too many employees needed at increasing cost)
4. Smart Management (Brain Power is Always in Short Supply)
In early 2021 as I shared my previous Stagflation experience here on SA
I had many people in effect assure me Inflation would not be a problem that Interest would never exceed 2.5% much less see double digits just couldn’t happen. I told them Prime reached 20% in 79/80 to break Stagflation.
It’s not too late with Select MLP’S to invest now get safe, the huge growth in
EPD’S Petrochemicals assets in 2021 added to the recent purchase of Navitas
for 3.25 Billion in cash giving them control of 20% of Natural Gas from the
Permian Basin. Just shows how truly smart their Board is.
Switch any Stocks of non safe Companies to EPD ASAP.
I am not the only one warning people now.
Best Luck
Wish there was an option to own EPD without K-1s.
@Rick234 Indeed, but you can own CEFs that hold MLPs with only modest drop in income and diversification benefits, that do not require filling out K-1 forms.
@Rick234 just buy in a foreign account and lever up to offset the 37% drop in dividends. Simples
Long EPD for many years now. Has management expressed a desire to grow the annual distribution by more than the current 2 1/2 % growth rate.
Thanks for the informative article.
Long EPD. I think it’s position in 5 years will be a function of where interest rates are in 5 years. If inflation takes off and rates skyrocket, I’d expect their unit payout not to keep pace, even with their stability and even with growing revenue. The price will fall. It’s pretty much a bond surrogate. That said, it’s a steady payer and you have to put money somewhere.
scottiebumich profile picture
@j2d2 you really don't understand the business. If inflation stays high their fees peg to inflation so they will be higher while they inflate away their debt (which is fixed).
@scottiebumich , that is how I understand things.
@scottiebumich Are you saying they actually peg to inflation metrics? Or do they simply have a lease escalation or increase clause, like a REIT? I thought EPD's users signed contracts for throughput at a set price for a set period and then they negotiate for a new contract?
OffSiteLocation profile picture
The risk adjusted returns are indeed excellent, and for those who have significant income the tax benefits of the distributions really sweeten the deal.
The major hope I have is for all pipelines to significantly reduce CapX and just bring home the bacon.. reduce debt.. increase the dividend… Until the Feds are more friendly with regulations, why do it… We all know it is total BS we will be clean fuel world in 5 years… Let’s make big money while foolish leaders run things in Washington….
Julian Lin profile picture
@AZ BOY At this point, I do not see EPD reducing debt, even if, as you said, it is one great use of capital. Multiple expansion will drive forward returns, and reducing leverage is one easy way to do that.
@AZ BOY So you think the UN climate chief is blowing smoke when he says we are "sleepwalking to a climate catastrophy?"

Perhaps the "foolish" people are those who ignore the obvious., blinded by their ideology and narcissism? Let alone remarkable willingness to ignore the obvious.

What good is "making big money" going to do for the young people inheriting a world of climate driven chaos, dislocation and drought, and ever-increasing deadly storms? If you can't look beyond your own needs, it's a sorry and sad situation.
Peter Frorer profile picture
@RealRural Has it ever occurred to you that liberal-leaning politicians have promoted climate crises ideas ever since television news became mainstream (end of the world stories have been popular since the 1960's)? Politicians promote environmental problems to help themselves get elected, the concept is used to motivate their otherwise disengaged voter base. The media piles on with all sorts of frightening speculation since that helps drive viewership and advertising dollars. The notion that we face manageable pollution challenges is just far too boring and limp a topic to satisfy politicians and the media, surely you see that? Perhaps we will need to manage our CO2 levels in the years to come, but doing so will be accomplished by technological innovation, not by the half assed politicians that don't understand physics, chemistry, and atmospheric engineering. It's easy for people with no skin in the game to promote revolution and hydrocarbon abandonment, sounds like fun, right? GreenPeace has Germany so wrapped up in chaos, we are going to benefit from watching all the mistakes made by those with the best of intentions. California and Massachusetts are also going to waste hundreds of billions as their engineering-illiterate politicians try all sorts of foolishness. Hopefully, the rest of the world is watching and can adjust their power source investments more wisely along the way.
listen25 profile picture
It was fairly apparent that EDP got too cheap during the 2020-21 time period. However, I am not in a position to fault Julian for his bad timing because I too have sold stocks at their lows instead of holding them for the upswing. Most recently I sold a third of my AMGN at a little over 200, and have been grinding my teeth every time I see a quote for it now at over 240. I am grateful to have purchased - and plan to hold - a lot of EDP during the lows, which does help me not think about AMGN as much.
Why do you think EPD will focus on external acquisitions? While I agree that EPD management would purchase assets at an attractive price that fit the EPD footprint - Navitas was a steal at about 6X IMO; they have mostly done organic asset builds for over 15 years. Purchases like Oiltanking were the exception to new pipes, dockage and chemicals.
I do agree EPD would purchase a chemical business that both "fits" and is reasonably priced. The obligation of the BOD is to maximize the ROI to benefit the unitholders.
The question for midstream MLPs seems to be how to best use the cash. What use has the highest ROI? Obviously Navitas ROI is well above either buybacks, debt repayment or distribution increases and has no time lag like the PDH2 plant.
Guess my question is what does the balance sheet, distribution and debt levels look like in 5 years. Am guessing some billions allocated to each, reduced by opportunities to acquire assets in the 6X area
Julian Lin profile picture
@arbtrdr "they have mostly done organic asset builds for over 15 years."

Correct, but public policy may prevent them from continuing to build.
@Julian Lin but this policy creates an economic moat around them vs potential competitors.
Julian Lin profile picture
@reganbaha That is arguable, yes.
Own EPD and MMP. War tensions are showing the world that energy is a must have given countries are too slow subsidizing wind and solar to actually make a difference. Wonder how many Greens would cut down trees to stay warm.? Would be great if some news network would publish a list of products that
are made from oil. How many components in a typical cell phone are made from oil?
Algorithmic profile picture
@labman106 the better question is “how much oil is in ALL the cellphones in circulation?”

Oil is far more useful as a manufacturing material than something you burn in gasoline.

My guess is that oil can be $500 a barrel and the cost of a cellphone would barely budge.
houtex profile picture
Bingo. I know people love to point out that oil and gas have non combustive purposes, but they need to understand what they are implicitly proposing. If tomorrow every environmentalist and industry person agreed that oil and gas are too important to plastics and other non combustive uses, so we are going to continue to produce enough for that but we are going to 100% eliminate the combustive uses of oil and gas, every single energy company is going bankrupt. Literally every one. All your investments are zero.

You are correct. The observation that oil and gas are used in cellphones is snark and nothing more. If that’s your investment case, give up and go home. It’s done.

Of course the good news is that there’s no way we are getting away from oil and gas as energy sources, so focus on that.
@Algorithmic Good points.

The conundrum, of course, is that petroleum is essential to the plastics that make modern life what it is, but at the same time plastic pollution and our massive wasteful throwaway societies - more than 100 MILLION cell phones are discarded each year, including all their hazardous materials - are killing animals, destroying the ocean ecosystem, and driving plastics related environmental illnesses in humans. All you need to do to despair is look at the photos of third-world rivers absolutely clogged with plastic trash.

Until we deal with this, impacts will measurably affect life around the planet.
KamilAgrawala profile picture
I have a large position in EPD, was buying below 15 during COVID and even some at below 11. I rate EPD a moderate buy now, it is not a steal anymore. Dividend growth has stagnated and smaller midstream players such as HESM and CEQP can be considered better adds. I am still long EPD on my cost basis, and love ENB too.
I own EPD and am here for the dividend.Share price growth is barely even an afterthought for me.And for me,raise the dividend.Share buybacks are not something that I desire.
Julian Lin profile picture
@01ruxbunny03 A lot of investors have the same strategy
I'm long EPD, find the author's arguments reasonable and his articles generally well-written. And while I respect the author's willingness to point out that EPD outperformed the S&P since he sold it, it gives me little confidence in the timeliness of the author's ratings. Please check my math. 95 covered stocks with 18 Strong Buys. 3 of the 18 are up 20% or more (33%, 24%, and 21%), while 9 of 18 are down 20% or more since the author's Strong Buy rating. PINS down 60%, UPST down 45%, TWLO down 21%, AI down 52%, ROKU down 29%, FB down 35%, SKLZ down 75%, ETSY down 34%, and CURLF down 52%. No doubt we all pick the occasional loser, but I must respectfully ask the author how is it that you are "ranked in the top 1% for financial performance on Tipranks"? I am flummoxed.
Julian Lin profile picture
@dldr The recent performance has been poor, but the long term performance is arguably not too shabby. My tip ranks link is here:


Check bacon in 6 months, and it should be even better.
Ted Waller profile picture
@Julian Lin interesting bacon recipe.
@Julian Lin You made my list with EPD.


This file auto updates. However during market hours it may be slow to update as Googlefinance can't keep up sometimes. I will be adding more to the list as they become "recommended". If you have some to add, let me know.
Peter Frorer profile picture
Julian, imagine what happens to your thesis if EPD not only gains a multiple expansion as you described but also is able to find growth opportunities. With the changes taking place in Europe affecting all nations that must consider national security, we are possibly or likely going to see many countries focus more closely on the source of their energy supplies. This bodes well for all domestic pipelines in the USA but also suggests US exports for oil and LNG have a new, much higher growth potential. EPD ought to continue to lead the nation as an energy export enabler. Furthermore, you failed to mention any suggestion that EPD may embark upon a "renewable" growth spurt via relationships and JV ideas in hydrogen or CCUS ventures. The home run potential here is that EPD continues on making massive returns with the assets already in place but also finds tens of billions to invest in the "cleaner" energy sources that so many people seem to think we need. I am not yet sure that hydrogen and CCUS are going to offer hundred billion dollar investment opportunities, but it is clear that if anyone is going to find ways to grow significantly in these two areas of "renewable" investing, that EPD will be there in size!!!! If that happens, then EPD will be a massive long-term wealth creator (frankly, it already is).
@Peter Frorer will growth in hydrogen and CCUS etc actually be profitable in the medium term or just satisfying ESG headlines in a me-too fashion?

Unless something more unique, maybe CO2 -> SAF if the technologies work, then maybe be cautious.
elliot_mllr profile picture
@reganbaha :
EPD management was very clear that while they will review many green type programs they will only invest in those that show an adequate return on invested capital.
Elliot Miller
@Peter Frorer I agree that the world will look toward the USA for its petroleum needs. The green new deal will continue to fall apart.
Apart from the 2-3% growth that you mention, which I think is low, there is also the price inflation they will be enjoying from the FERC. Add that to the higher price of commodities and health of their customers and you are looking at a totally different picture.
Howard CostaRica profile picture
I think the first time I saw Rida mention this stock was on 12/22/21. Perhaps the 1,000 shares I purchased that day was from you?

I am pleased that I got in at $20.81 and realizing a 24.27% increase in the value of my position and a yield of 8.47%. Thanks again Rida!

Good analysis. Thanks.
Income4ever aka Cyclenut profile picture
"With EPD yielding around 7.2%, the stock could prove to be a great addition to income-seeking portfolios."
EPD has been a proven addition to income portfolio for many years now, one of the best .....depending on entry point of course....
It seems to me that the Russian invasion of Ukraine greatly increases the prospects for a positive FID on the offshore project (SPOT) soon. If so, capital expenditures will increase significantly over the next few years. Completion of that large project and PDH2, which is even bigger IIRC, should propel cash flows more than the author suggests. In the current energy environment, EPD's future looks extremely bright. Long EPD, MMP, WMB
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