Strong Q in Tough Environment, Target Price to $26.50, Buy
Operations Hold Up — Enterprise Products Partners L.P. (EPD) reported better than expected results despite lingering hurricane impacts, falling commodity prices, and a weak economic backdrop. Distributable cash flow for the quarter of $331.3 million was 4.6% higher than our estimate and covered distributions by 1.24x.
Outlook Stable — EPD should generate ample cash flow to fund distributions to unitholders and even provide distribution growth despite seemingly significant economic challenges. While the majority of the partnership's midstream assets generate fee-based cash flow, EPD has hedged ~67% of this year's commodity price exposure that is associated with its natural gas processing operations.
Liquidity Update — EPD was extremely active in the capital markets over the past couple months, issuing both debt and equity and executing additional credit facilities. The partnership received ~$280 million in cash from Duncan Energy Partners as part of an asset dropdown in early December and also slightly cut back its growth capital budget for 2009 to $800 million. EPD currently has sufficient liquidity to fund all expenditures in 2009, and we project it will be able to exit the year with a ~$600 million cushion.
Maintain Buy, Target to $26.50 — We are maintaining our Buy/Medium Risk (1M) rating on EPD, but are lowering our target price to $26.50/unit. Our new target price assumes that EPD units should trade with an 8.5% yield, but also assumes the partnership will be more conservative in raising the distribution over the next 12-months given the current environment and increase distributions to $2.24/unit vs. our previous estimate of $2.26/unit.
The Q4 results were IMO surprisingly solid. Reading this report makes me feel even better. I keep adding EPD, but it has been with a , "Are you doing the right thing?" kind of feeling. I'm beginning to see daylight in the EPD tunnel without thinking it's an oncoming freight train! Thank you for posting this report.
<<<I keep adding EPD, but it has been with a , "Are you doing the right thing?" kind of feeling.
LOL....me too. I keep adding and saying, "damn, I am getting a little deep into EPD". But what else looks as good right now? With the yield this has and potential for unit growth it has few equals in any sector.
And with analyst reports like the ones being posted it gives you the confidence to not only hold, but add. Cash may be king right now, but I need to earn more than Zero % interest that the banks are paying.
And FWIW, I also like some of the Canroy's...at least as far as for divvies. I am pretty heavy into BTE also. It has dropped down now to where it has a yield up around 16%.