Analyst's Notes Analysis by Gary F. Hovis, February 15, 2012
ARGUS RATING: BUY
• Record 2011 earnings and strong outlook • We are upgrading Enterprise Products Partners to BUY from HOLD based on valuation, the company's strong 2011 earnings, and our revised earnings per unit estimate for 2012. Our 12-month target price is $61. • Enterprise's general partner recently approved a quarterly cash distribution of $0.62 per unit for 4Q11, up from the $0.59 per unit paid for 4Q10. • We expect near-record earnings in 2012 and 2013 as the economy recovers and the partnership's new pipeline and natural gas processing assets come on line.
• We are raising our 2012 earnings per unit estimate to $2.50 from $2.30, and setting a 2013 estimate of $2.75. We are also raising our long-term growth rate forecast to 8% from 6%.
INVESTMENT THESIS We are upgrading Enterprise Products Partners LP (NYSE: EPD) to BUY from HOLD based on valuation, the company's record 2011 earnings, and our revised earnings per unit estimate for 2012. EPD trades at 20.3-times our new 2012 EPU estimate, at the low end of the range for comparable pipeline master limited partnerships and the broader natural gas pipeline industry. We are setting a 12-month target price of $61. Our five-year rating remains BUY. Overall, we think that Enterprise Products is well positioned to deliver solid long-term growth and to increase cash distributions to unit holders. Enterprise continues to bring new capital projects online; these projects should boost earnings in 2012 and beyond, partially offsetting dilution from the unit offering in 2010. Following strong growth over the last few years and additional earnings from new pipeline and gas processing infrastructure projects now coming on line, we expect further increases in EBITDA in 2012. Our generally favorable outlook for EPD is based on the partnership's strong and expanding operating margin; reasonable long-term debt load; growing U.S. market share; accretive acquisitions; and, in our view, an impressive U.S. distribution system, both for natural gas and natural gas liquids (NGLs). Growth in volume and earnings has been strong in recent years, which we believe reflects the impact of a capable management team. The company's operating assets are also strategically located near energy supply sources with a direct connection to areas of
Credit Suisse conference notes that EPD has the largest organic growth program in place and that with no GP and IDRs gives EPD enormous flexibility..... EPD retained so much of its dcf that it was not required to distribute they were able to avoid at least 2 capital raises which lowers their cost of capital significantly below peers like WPZ and KMP.