Enterprise Products Partners LP EPD has witnessed upward estimate revisions for its 2020 earnings in the past 30 days. In fact, four out of eight analysts have revised their estimates upward. Also, despite the coronavirus-induced unfavourable business environment, this leading midstream energy player’s stock price has surged 31.4% quarter to date.
The partnership, carrying a Zacks Rank #3 (Hold), has a stable business model and is not significantly exposed to the volatility in oil and gas prices. Enterprise Products generates stable fee-based revenues from its extensive pipeline network, spreading across roughly 50,000 miles, transporting natural gas, natural gas liquids (NGLs), crude oil petrochemicals and refined products. Importantly, the pipelines are connected to the key shale plays in the United States and nearly 90% of the refineries in the east of Rockies.
The midstream infrastructure provider also has storage assets that has a capacity to store roughly 260 million barrels of (MMBbls) of NGL, petrochemical, refined products, and crude oil. The assets can also store 14 billion cubic feet (Bcf) of natural gas. Moreover, Enterprise Products has $7.7 billion in major capital projects under construction that is likely to provide incremental fee-based revenues.
Also, the partnership’s balance sheet has lower debt exposure as compared to the composite stocks belonging to the industry. The partnership’s debt to capitalization ratio of 0.53 is lower than the industry’s 0.58. In fact, the ratio has persistently been lower than the stocks belonging to the industry over the past few years. Moreover, the partnership’s long-term midstream contracts, depicting a stable business model, reflects strong capability to pay off $29.9 billion of total debt principal outstanding, as of Mar 31, 2020.
It is to be noted that although Enterprise Products’ long-term business fundamentals look good, declining production of commodities owing to coronavirus-induced dented energy demand is likely to hurt short-term demand for the partnership’s midstream assets. Also, lower margins from Midland-to-ECHO 1 pipeline system is hurting the partnership.
Stocks to Consider
Better-ranked players in the energy sector are Murphy USA Inc MUSA, Key Energy Services, Inc. KEGX and CNX Resources Corporation CNX. While Murphy and Key Energy sport a Zacks Rank #1 (Strong Buy), CNX Resources carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Murphy USA is likely to see earnings growth of 7% in the next five years.
Key Energy is expected to witness bottom-line growth of 97.2% in 2020.
CNX Resources has witnessed upward estimate revisions for 2020 bottom line in the past 60 days.
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