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Enterprise Products (EPD) Up 10.3% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Enterprise Products Partners (EPD). Shares have added about 10.3% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Enterprise Products due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Enterprise Products Q1 Earnings Beat, Capex View Cut

Enterprise Products Partners reported first-quarter 2020 adjusted earnings per limited partner unit of 61 cents, beating the Zacks Consensus Estimate of 52 cents. The bottom line also increased from 57 cents per unit in the year-ago quarter.

Revenues declined to $7,483 million from $8,544 million in the prior-year quarter. The top line also missed the consensus estimate of $8,304 million.

The strong first-quarter earnings were supported by higher pipeline transportation volumes of NGL and contributions from the Permian Basin natural gas gathering system. The positives were partially offset by lower margins from Midland-to-ECHO 1 pipeline system.

Segmental Performance

Gross operating income at NGL Pipelines & Services increased from $959.2 million in the year-ago quarter to $1,042 million on higher pipeline transportation and fractionation volumes of NGL.

Natural Gas Pipelines and Services’ gross operating income increased to $283.8 million from $264.3 million in the year-ago quarter. Contributions from the partnership’s Permian Basin natural gas gathering system aided the segment, partly offset by lower natural gas transportation volumes.

Crude Oil Pipelines & Services recorded gross operating income of $452.9 million, which declined from $662.3 million in the prior-year quarter owing to lower margins from Midland-to-ECHO 1 pipeline system.

Gross operating income at Petrochemical & Refined Products Services amounted to $278.5 million compared with $242.6 million a year ago backed byhigher propylene production volumes.

DCF & Unit Repurchase

Quarterly distribution improved 1.7% year over year to 44.50 cents per common unit or $1.78 per unit on an annualized basis.

Adjusted distributable cash flow was $1,553.6 million, down 4.6% year over year, and provided coverage of 1.6x. Notably, the partnership retained $574 million of distributable cash flow in the first quarter. It bought back around 6.4 million units for $140 million in the first quarter.

Financials

During the quarter, the partnership’s capital expenditure was $1,079.5 million.

As of Mar 31, 2020, its outstanding total debt principal was $29.9 billion. Enterprise Products’ consolidated liquidity amounted to $7 billion, which included unrestricted cash on hand and available borrowing capacity.

Outlook

The partnership has lowered its 2020 growth capital budget by roughly $1 billion to a band of $2.5 billion to $3 billion. The partnership has also slashed 2020 sustaining capital expenditure guidance from $400 million to $300 million.

Moreover, Enterprise Products projects growth capital spending for 2021 and 2022 at $2.5 billion and $1.5 billion, respectively, considering the sanctioned projects.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Enterprise Products has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Enterprise Products has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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