Enterprise Products Partners LP Stock Is Estimated To Be Fairly Valued
- By GF Value
The stock of Enterprise Products Partners LP (NYSE:EPD, 30-year Financials) is believed to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $23 per share and the market cap of $50.2 billion, Enterprise Products Partners LP stock is estimated to be fairly valued. GF Value for Enterprise Products Partners LP is shown in the chart below.
Because Enterprise Products Partners LP is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which is estimated to grow 0.18% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Enterprise Products Partners LP has a cash-to-debt ratio of 0.04, which is worse than 85% of the companies in Oil & Gas industry. GuruFocus ranks the overall financial strength of Enterprise Products Partners LP at 4 out of 10, which indicates that the financial strength of Enterprise Products Partners LP is poor. This is the debt and cash of Enterprise Products Partners LP over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Enterprise Products Partners LP has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $27.2 billion and earnings of $1.71 a share. Its operating margin is 16.90%, which ranks better than 81% of the companies in Oil & Gas industry. Overall, GuruFocus ranks the profitability of Enterprise Products Partners LP at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Enterprise Products Partners LP over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Enterprise Products Partners LP is -3.1%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth rate is 7.9%, which ranks in the middle range of the companies in Oil & Gas industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Enterprise Products Partners LP's ROIC is 8.32 while its WACC came in at 8.15. The historical ROIC vs WACC comparison of Enterprise Products Partners LP is shown below:
In summary, Enterprise Products Partners LP (NYSE:EPD, 30-year Financials) stock is believed to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Enterprise Products Partners LP stock, you can check out its 30-year Financials here. To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener. This article first appeared on GuruFocus.
