Enable Midstream's Acquisition to Meet Increased Demand
Enable Midstream Partners, LP ENBL has announced that it has entered into an agreement to acquire Align Midstream, LLC, for approximately $300 million, subject to customary approval and closing conditions.
The acquisition will be incremental to the Enable Midstream’s 2017 expansion capital outlook. This transaction is expected to be accretive to distributable cash flow per unit of the partnership in 2018.
Why Align Midstream?
Align Midstream, LLC, owns natural gas gathering and processing assets in the Cotton Valley and Haynesville plays of the Ark-La-Tex Basin. Additionally, it operates approximately 190 miles of natural gas gathering pipelines in Texas and Louisiana along with a cryogenic natural gas processing plant in Panola, TX, with a capacity of 100 million cubic feet per day.
The management believes that the acquisition extends Enable Midstream’s footprint in areas with increasing producer activity.
Our View
The partnership’s commercial goals have primarily been driven by strategically located assets in the country. Its gathering and processing assets as well as transportation storage assets are well positioned to serve growing demand in the market. As of May 2017, the company expects to invest approximately $425-$515 million in Gathering and Processing and $75-$85 million in Transportation and Storage segments for the full year.
Enable Midstream has also efficiently deployed capital by interconnecting assets in the most efficient manner which has enabled it to cater to customers’ needs across diverse markets in a timely and efficient manner. As of May 2017, the company anticipates Distributable Cash Flow to be in the range of $555-$605 million for the full year.
As such the partnership has been focused on strengthening capital efficiency and cost discipline such as optimizing assets and supporting new projects with existing assets wherever possible.
We believe that the above acquisition will strategically integrate Align Midstream’s long-term, fee-based contract assets to Enable Midstream’s current portfolio. This will enable the partnership to assimilate and optimize own assets as well as aid it to increase own production activity and volume growth. This in turn will act out favorably for the partnership going forward as it will be better positioned to serve a diverse mix of customer needs in active areas.
Price Movement
In the last one year, units of Enable Midstream have gained 9.0%, outperforming the industry’s loss of 1.8%.
Such outperformance can be attributed to the partnership’s second quarter performance resulting out of increased natural gas gathered and processed volumes along with increased intrastate average deliveries.
Zacks Rank & Keys Picks
Enable Midstream currently carries a Zacks Rank #3 (Hold). Investors can consider better-ranked stocks from the broader sector such as SolarEdge Technologies, Inc. SEDG, Alliance Holdings GP, L.P. AHGP and JA Solar Holdings, Co., Ltd. JASO. These stocks sport a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here.
SolarEdge Technologies delivered an average surprise of 21.72% in the trailing four quarters. Its 2017 estimates have risen by 32.4% to $1.88 per share in the last 90 days.
Alliance Holdings delivered an average surprise of 13.64% in the trailing four quarters. Its 2017 estimates have risen by 5.7% to $3.34 per share in the last 90 days.
JA Solar delivered an average surprise of 716.67% in the trailing four quarters. Its 2017 estimates have risen by 6000% to 61 cents per share in the last 90 days.
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