As Enterprise Products Partners (EPD) gears up for expansion, investors are left wondering whether now is the right time to buy its stock.
Earnings Highlights
Enterprise Products Partners stock performance: Enterprise Products Partners has long been a favorite among income investors, and it currently boasts a forward yield of 6.6%. The company's earnings reports typically lack surprises, reflecting its steady, fee-based midstream business. In Q4, the company reported a 3% increase in total gross operating profit, reaching $2.63 billion. Adjusted EBITDA grew by 4% to nearly $2.6 billion, while distributable cash flow rose 5% to $2.16 billion.
Distribution Coverage
The distribution coverage ratio stood at 1.8, indicating a strong ability to sustain and potentially increase distributions. The company paid a quarterly distribution of $0.535 per unit, a 3.9% year-over-year increase. With 26 consecutive years of raising distributions, EPD also repurchased 2.1 million units for $63 million in the quarter.
Increased Capex Plans
Looking ahead, Enterprise plans to allocate between $4 billion and $4.5 billion for growth capex in 2025, a significant increase from $3.9 billion in 2024 and a major jump from $1.6 billion in 2022. The company currently has $7.6 billion in major growth projects underway, with most set to come online between late 2025 and the end of 2026.
Project Potential
Recent earnings calls highlighted 20 data center projects in Texas, anticipated to demand 2 billion cubic feet of natural gas daily, along with 15 potential power plant projects. However, the long-delayed Sea Port Oil Terminal (SPOT) project remains uncertain regarding its final investment decision.
Growth Projections
Enterprise forecasts mid-single-digit percentage growth in cash flow for 2025, with expectations for a more significant growth year in 2026 as projects near completion.
EV/EBITDA Analysis
Currently, Enterprise Products Partners trades at a forward enterprise value-to-EBITDA (EV/EBITDA) multiple of 9.8, based on 2025 estimates. This valuation is below its historical range prior to the pandemic and significantly lower than the 13.7 average for midstream master limited partnerships (MLPs) from 2011 to 2016.
Investment Outlook
Given the company's plans for growth and the favorable valuation, now could be an opportune time to buy EPD stock. Investors can benefit from a historically attractive price point while enjoying a robust yield as the company positions itself for future growth.
With Enterprise Products Partners ramping up its growth initiatives and maintaining a strong financial foundation, it presents a compelling investment opportunity. The combination of an attractive yield and favorable valuation makes it a stock worth considering for investors looking to capitalize on potential future growth.
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