We will have to agree to disagree. 25% downside move is a blip on the radar for well run companies. Price always recovers if the underlying business is solid. Again, Gilead fell like 30% I think after that Pharmaset purchase, yet it proved to be a brilliant acquisition and the market was *very* wrong to punish them (short term) for it. Companies will fall 10-30% all the time for whatever reasons, be it interest rates, FOREX issues, dilution, acquisitions, etc. The best run companies always bounce back.
I also strenuously disagree with you regarding how you expect management to be able to defend share price any given week so that there is never a 20% fall. How do you propose they do that?!? Companies have little control over share/unit price. All they can do is run a good business and usually Mr. Market responds by a constantly rising share price. There are always pockets of weakness/instability though. To expect management to never ever allow 20% declines is unrealistic.
Also, stocks should *never* be held by people who may need the principle back within 3 years. Never. That is one of the golden rules of investing! Smart investors know to have 6-12 months of house hold expenses in cash (or other very liquid and stable investments). Have another bucket of around 3 - 5 years of expenses in a bond ladder, and only put money that is not needed for years down the road in stocks. People who ignore this simple but important rule have no one to blame but themselves.
I think that with Kinder out of the mix EPD is the largest Cap.MLP and subject to being sold off by ETF'S and Index players when sentiment changes $$ flows..The fact that they've increased the Dist. nearly every Quarter for the past 10 years allows me to be patient in view of Energy,and all Energy related being the most "out of favor" segment of the Market....As frustrating as it is.
Just explain then what relevance your adjusted cost has to new money coming to the company that is necessary to recapture the "short term' losses... I'm surprised you didn't stun us all with your personal adjusted yield on the $ invested
This has become a laggard of the sector.... and all arguments that its a leader are past history... EPD can only be judged by its present
Don't lecture... you make plenty of mistakes in your posts/opinions... like when you said late last year/early this year that Cushing was drawing down when it was in fact filling at record rates..
Your's is an opinion just like mine... mine is more than valid... don't give me that "OK" tone like a know it all
The market currently disfavors EPD...., an opinion on why that is helps here... an opinion on why the market sold off the last 2 acquisitions helps here... faith is for church... management teams need their feet held to the fire and IF 25% down after 2 acquisitions isn't the time to do there never is a time to do so
This space is for discussion of EPD pro and con.... no one determines what is relevant... I don't care that EPD stated that July/Aug is when they determine when to act... IF they don't think the natives are getting restless with their inaction they will not act... I'll bet that IF they don't act in July/ Aug of this year with a an increase in the rate we will see another selloff in excess of 10%... would that be the time to question them.... after the fact
I'll apologize.... I'm sorry... I'm sorry that I have questions and want answers why my 20K shares have lost $200K in value... and the reality is anyone who owns 100 shares has the same legitimate right for answers why their shares lost $1000
This board will not influence the share price... but what it can do is let management get a feel for their investors sentiment.... the sentiment that its OK for a company to be down 25% when a market is at highs is insane...
EPD stated years ago they would reevaluate for distribution changes in July or August each year. OK? Next where is there and our money best used? Keep it for a return of some 15 percent compounded or pay more out? I get the short term frustration, but their retention of capital has eliminated the need for some 100,000,000 units to be missed. As to issuing units-they almost never have a secondary with new units mostly to existing bondholders at a discount. That benefits those that hang in. Today MLPs are out of favor.but my adjusted cost of under $1a unit is amazing. Right now EPD does not care much about short term price moves in the unit price.
25% to the downside is not a short term price movement... it is in fact a sign that there is something else going on... whether that be overpaying for acquisitions... too small of the dist growth rate... or even an inclusion of the fear of the Fed
No matter how you stack it up when a company is off 25% of its highs it can no longer even be in the discussion for the best run company in its space
All unit holders deserve the unit value to be defended because we are all beset with different situations in life.... an emergency here... a tragedy there.... which may require liquidation of all or part of their holding.... how they cash out or profit should not be "at the whim of the market"... the company needs to protect the equity of all holders at all times... and one should not dismiss a 25% decline because the reality is that the "market" is generally efficient..... and we could argue that inefficiencies in the market are abundant with the S&P within 2% of record highs... but that makes EPDs situation that much worse because IF it is such a market leader why is it at lows while the my is at highs.... in well over a decade of owning EPD I cannot remember a time where EPD trailed the mkt performance by in excess of 20%
These are valid point that management needs to addess
Understand your frustration but I honestly feel this is the best run pipeline in the Country. I reinvest all my dividends. Give them a little more time. There a good bunch of guys.
Short term price movements are just noise. History will accurately judge whether any given acquisition was good or not. Look at GILD as an example. The stock got crushed when they announced the Pharmasset acquisition as all the 'smart' people yelled and screamed from their pulpits that Gilead over paid by a lot to buy them out for a Hep C drug that may or not pan out. Fast forward to today where GILD is trading at all time highs and now everyone is yelling and screaming that they are making too much money thanks to that purchase. Let history judge.
So true. The recent price weakness probably due to fear of rate hikes, lower petroleum prices, and most importantly....retail investors who buy and quickly sell EPD without a real understanding of the company or their long-term goals.
The market has despised the last two "prudent acquisitions" as the equity reacted to both in an extremely negative fashion... that would indicate that those who are way smarter than you or me feel that EPD over paid for those acquisitions
Yep, the growth is about 3.7%; how many people can count on a 3.7% raise? Put your feet up on your desk and enjoy!
Every day EPD management is taking steps to defend the unit price by running the business as best they can and making prudent acquisitions with cash flow and debt. Not sure what else you can expect them to do?
excellent points, agreed that if EPD keeps raising distribution by same amount, that will translate into a lower distribution CAGR. I've seen breakdowns showing that midstreams with the highest distribution CAGR typically have the highest total return (interestingly, low yielding GP's returned more than high yielding MLP's, because they had higher distribution growth brates, given the nature of IDR's) . SO unless EPD picks up its distribution growth rate as you suggest (and as you say it can, its distribution coverage is what 1.4-1.5x) , the lower growth rate will (eventually) force the market to demand a higher yield thus- all else the same- lower unit price
and down the line, given how large EPD has become, it will be difficult for EPD to maintain high growht rates. Lookign at smaller MLP's (or their GP's) might be a better long term total-return strategy than sticking with EPD
thanks for the helpful exchange
I understand the 5.6% metric but its not a realistic one because IF I want to buy EPD today the trailing yrs Q is irrelevant to the new money which drives the unit price
The only thing that is relevant is what will I be paid over the next year... so when the stated distribution today is $1.50 (based on $0.375 Q) and IF I hold and collect the next 4 pmts I will collect $1.55 with the compounded 1/2 cent increases which is a 3.3% increase and that rate of growth is not enough to attract new money (the stated annualized rate at that time will be $1.58)
I've made this argument many times before and while the stock was a leader the argument appeared to be empty... but now with the equity 25% off its highs its hitting home how saving DCF for growth can be a huge negative when one considers doing a secondary with a beat up unit price
I used a speculative $250 million secondary in my previous post but the reality is EPD does secondary's far in excess of that... a $1 Billion secondary costs $12 million more per Q doing a secondary at $31 than it costs doing a Billion$ at $41
That's cash that could be in partners pockets via higher yields/growth rates which result in stronger equity and lower cost of capital for growth projects
Increasing the dist growth rate is a win win for partners because we get more net cash and higher equity
crud, I used the April 2013 not 2014 dist as my starting point, so I overestimated by 2: The Apr 2014 dist (0.71) divided by 2 (to adjust for the stock split in 2014) is 0.355, compared to the Apr 2015 dist (0.375) , gives a YOY rise of 0.2; so 5.6% dist growth rate
so, your number looks wrong? but your main point that EPD's dist growth (and share price) is middling seems spot on, as it trails WMB (44%), MMP (17%), ETP (8.6%), and OKS (6%) but still ahead of EEP (4.8%), MW (4.6%), BPL (4.5%), and that could be part of why EPD unit price has lagged quite a few (but certainly not all) of the other midstreams
how does distirbution coverage vary among midstreams, do you know? I do not follow many that closely
nonsense... The dist is growing @ 5 cents year on $1.50.. that's 3.3% show me where that math is incorrect
IF you can show me where my distribution grew by 12% I'll eat my hat
EPD's distribution grew 11.9% YOY, the best dist growth rates of the midstreams TLP, PBA, OKS, BPL, MWE, ETP, and PAA (although MMP and especially WMB grew dist's much faster). And EPD has one of the lowest yields among midstreams, testament to the market placing a premium on its shares?
but you are right, EPD unit price has fallen about the most of the midstreams last 6 months, with BPL, TLP and WMB unit price far outperforming EPD. But, do you think they will continue to outperform? What midstream is likely to outperform in the next 6 months?