Enterprise Products Partners L.P. (EPD) is a provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products in North America. The company’s segments include NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services.
Heightened inflation and the prospects of a recession have kept investors concerned. Equities and other major asset classes have been hard hit over the past few months because of the consistently high inflation and the Federal Reserve’s aggressive monetary tightening.
Amid uncertain economic and market conditions, investors can look to invest in dividend-paying stocks to generate a steady passive income.
EPD’s four-year average dividend yield is 7.60%, and its forward annual dividend of $1.86 translates to a 7.63% yield. The company has increased its dividend for 23 consecutive years. Its dividend has grown at a 1.79% CAGR over the past three years.
In terms of growth, the company has projects worth $4.60 billion in the works. The under-construction projects are spread across the natural gas, natural gas liquids, and petrochemical businesses. Nearly 65% of all projects will become operational between 2022 and 2023. This is expected to bolster the company’s revenues and earnings.
The stock is currently trading at a discount to its peers. In terms of forward EV/S, EPD's 1.73x is 6% lower than the 1.84x industry average. Its forward P/S of 1.09x is 15.2% lower than the 1.29x industry average. Also, the stock's 11.69x trailing-12-month P/E is 7.1% lower than the 12.59x industry average.
The stock has gained 10.9% in price year-to-date and 1% over the past year to close the last trading session at $24.37.
Here's what could influence EPD’s performance in the upcoming months:
Mixed Financials
EPD’s net income declined 2.3% year-over-year to $1.33 billion for the first quarter ended March 31, 2022. The company’s EPS came in at $0.59, representing a decline of 3.2% year-over-year. However, its distributable cash flow increased 5.7% year-over-year to $1.83 billion. Also, its adjusted cash flow from operations increased 1.5% year-over-year.
Favorable Analyst Estimates
Analysts expect EPD’s revenue for fiscal 2022 and 2023 to increase 23% and 0.3% year-over-year to $50.19 billion and $50.33 billion, respectively. Its EPS for fiscal 2022 and 2023 is expected to increase 15.2% and 5.4% year-over-year to $2.42 and $2.55, respectively.
Mixed Profitability
In terms of trailing-12-month gross profit margin, EPD’s 13.22% is 67% lower than the 40.13% industry average. Likewise, its 17.59% trailing-12-month EBITDA margin is 20.1% lower than the industry average of 22.03%.
However, its 10.28% trailing-12-month net income margin is 111.5% higher than the 4.86% industry average. Also, its 0.66% trailing-12-month asset turnover ratio is 23.8% higher than the industry average of 0.53%.
POWR Ratings Show Promise
EPD has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. EPD has a B grade for Value, in sync with its discounted valuation. The stock is trading above its 10-day and 200-day moving average of $24.16 and $24.17, respectively, justifying its A grade for Momentum.
EPD has a B grade for Sentiment, in sync with the favorable analyst estimates. It has a C grade for Quality, consistent with its mixed profitability.
EPD is ranked #10 out of 34 stocks in the A-rated MLPs – Oil & Gas industry. Click here to access EPD’s ratings for Growth and Stability.
Bottom Line
Amid the current market and economic uncertainties, EPD’s 7.63% dividend yield looks pretty attractive. The stock is also trading at a discount to its peers. Since the upcoming projects are expected to be accretive to its revenues and earnings, the stock should perform well. So, it could be wise to invest in the stock now.
How Does Enterprise Products Partners L.P. (EPD) Stack Up Against its Peers?
EPD has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following MLPs – Oil & Gas stocks with an A (Strong Buy) and B (Buy) rating: Martin Midstream Partners L.P. (MMLP), Western Midstream Partners, LP (WES), and Global Partners LP (GLP).
EPD shares rose $0.07 (+0.29%) in premarket trading Friday. Year-to-date, EPD has gained 15.19%, versus a -19.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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