Why Hold Strategy is Apt for Enterprise Products (EPD) Now
Enterprise Products Partners LP EPD is a leading midstream energy player with lower exposure to volume and price risks. For 2022 and 2023, the partnership is likely to see earnings growth of 17.6% and 1.3%, respectively.
Factors Working in Favor
Enterprise Products, currently carrying a Zacks Rank #3 (Hold), has a stable business model and is not significantly exposed to the volatility in oil and gas prices. It generates stable fee-based revenues from its extensive pipeline network that spreads across more than 50,000 miles, transporting natural gas, natural gas liquids (NGLs), crude oil petrochemicals and refined products.
The midstream infrastructure provider also has storage assets that can store more than 260 million barrels of NGL, petrochemical, refined products and crude oil. These assets can also hold 14 billion cubic feet of natural gas. Moreover, Enterprise Products has $5.5 billion of major capital projects under construction that are likely to provide incremental fee-based revenues.
The partnership’s balance sheet has lower debt exposure than the composite stocks belonging to the industry. Its debt-to-capitalization ratio of 0.52 is lower than the industry’s 0.53. In fact, the ratio has persistently been lower than the stocks in the industry in the past few years. The liquidity profile of Enterprise Products is impressive, as the firm reported its consolidated liquidity at $3.3 billion, which incorporates unrestricted cash along with available borrowing capacity under its revolving credit facilities.
Risks
Enterprise Products has several assets that have been providing midstream services for many years. This has raised the possibility of investing massive capital in maintaining those infrastructures. Thus, in the future, Enterprise Products could increase maintenance or repair expenses.
A slowdown in drilling activities, as upstream players mainly focus on stockholder returns rather than boosting output, is hurting production. This is affecting the demand for transportation and storage demand to some extent.
Stocks to Consider
Better-ranked players in the energy space include Schlumberger Limited SLB, Eni SpA E and NexTier Oilfield Solutions Inc. NEX. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Schlumberger is a well-known name in transforming the oil and gas industry by employing its cutting-edge solutions. With its quantifiably proven solutions, SLB is lowering emissions and its impacts. Over the past 60 days, Schlumberger has witnessed upward earnings estimate revisions for 2022 and 2023, respectively.
Leveraging on its consolidated global portfolio, Eni is ensuring to supply energy, especially natural gas, to Italy and Europe. Eni is also leading energy transitions with a commitment to reducing net greenhouse gas emissions to zero by 2050.
NexTier Oilfield Solutionsis also a well-known U.S. land oilfield service player. With higher exploration and production by upstream companies, demand for NexTier Oilfield’s diverse set of well completion and production services is handsome.
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Schlumberger Limited (SLB) : Free Stock Analysis Report
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