With its impressive third quarter results,
Enterprise Products Partners L.P.
) has now delivered 12 straight positive earnings surprises and
also announced its 33rd quarterly distribution increase in a row.
With a distribution yield of 5.2% and a long-term earnings growth
projection of 8.5%, this Zacks #2 Rank (Buy) midstream energy
company appears to be a solid pick for investors looking for both
income and capital appreciation.
Strong Third Quarter
On November 1, Enterprise Products Partners reported third quarter
adjusted earnings per limited partner unit of 68 cents, outpacing
the Zacks Consensus Estimate by 13.3% and last year's earnings by
23.6%. Higher volumes of crude, natural gas and other commodities
through its pipelines led to the improvement. This pipeline
operator has recorded positive earnings surprises in the last
twelve quarters with an average beat of around 10.0%.
Record oil and natural gas pipeline volumes, as well as record
fee-based natural gas processing volumes, also contributed to the
positives. These were mainly buoyed by more than $4 billion in
capital investments that the partnership made over the last 12
Enterprise Products Partners transported 4,299 thousand barrels per
day of natural gas liquids (NGL), crude oil, refined products and
petrochemical products, representing a 6% increase on a
year-over-year basis. Natural gas pipeline volumes also increased
almost 12% in the third quarter.
History of Increasing Distributions
EPD has set a track record of consistent distribution growth. On
October 10, the partnership hiked its third quarter 2012 cash
distribution to 65 cents per unit ($2.60 per unit annualized),
representing an increase of approximately 6.1% year over year and
Importantly, this latest payout marks the 33rd consecutive
quarterly distribution hike by the pipeline operator and the 42nd
distribution rate increase since its initial public offering in
1998. Again, this distribution leads to a healthy coverage ratio of
Solid Organic Projects
The pipeline operator's growth visibility remains solid and it is
supported by around $8 billion of project inventory through 2015.
Enterprise Products Partners expects to bring online approximately
$4 billion of projects through year-end 2013. Between 2014-2015, an
additional $4 billion of projects will likely come into service.
The partnership remains busy on its large expansion capex program
that includes Seaway crude pipeline reversal Phase I, several Eagle
Ford projects, ECHO crude oil terminal Phase I and Mt. Belvieu
Fractionator. This project inventory is also expected to provide
additional organic opportunities beyond 2015.
Surge in Earnings Momentum
The past 30 days have seen 7 of 10 estimates for 2012 move higher,
boosting the Zacks Consensus Estimate by nearly 2% to $2.59. The
Zacks Consensus Estimate for 2013 has also advanced by nearly 2% to
$2.67, as 9 of 15 estimates headed higher.
With the 2011 profit level at $2.21 per unit, the projected growth
rate stands at 17.2% for the current year. The annual growth rate
is expected to be 3.1% in 2013, provided Enterprise Products
Partners meets the estimate.
With respect to its valuation metrics, units of Enterprise Products
Partners look reasonable on a P/E basis. The stock is trading for
about 19.4 times forward estimates, a 15.8% discount to the peer
group average of 23.1x.
The partnership has a trailing 12-month return on equity (ROE) of
18.7%, which is in-line with the peer group average.
Market Performance & Technicals
The chart below shows that the stock has been almost consistently
trading above its 200 days moving average, except for a small
hiccup in June. Again, the unit price has outperformed the S&P
500 for the past twelve months and has delivered a return of
approximately 11.7% during the period, versus 9.2% for the
benchmark. This positive momentum is likely to persist on the back
of expected higher payouts.
Enterprise Products Partners, L.P., a leading North American master
limited partnership (MLP), is engaged in providing a wide range of
midstream energy services to the producers and consumers of natural
gas, NGL, and crude oil.
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