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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. The Zacks Consensus Estimate for the partnership’s 2023 earnings per share of $2.50 has witnessed two upward revisions in the past 60 days.

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 hold more than 260 million barrels of NGL, petrochemical, refined products and crude oil. These assets can also store 14 billion cubic feet of natural gas. Moreover, Enterprise Products has $5.8 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 0.51 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 it reported consolidated liquidity at $4.1 billion, which incorporates unrestricted cash along with available borrowing capacity.

Risks

Enterprise Products has several assets that have been providing midstream services for many years. This has raised the possibility of investing massive maintenance 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 Murphy USA Inc. MUSA, Sunoco LP SUN and Valero Energy Corporation VLO. While Murphy USA and Valero Energy carry a Zacks Rank #2 (Buy), Sunoco sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA is a well-known name as a prime retailer of gasoline and convenience merchandise. The firm, having more than 1,700 stores, has witnessed upward earnings estimate revisions in the past 60 days for 2023 earnings.

Sunoco has a stable business model while transporting motor fuel to roughly 10,000 convenience stores. In the past 30 days, it has witnessed upward earnings estimate revisions for 2023.

Valero Energy is well poised to gain from constraint capacity in global refining activities and favorable demand for refined products. This, in turn will possibly drive utilization in refining capacity and hence will boost cashflows.

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Enterprise Products Partners L.P. (EPD) : Free Stock Analysis Report

Valero Energy Corporation (VLO) : Free Stock Analysis Report

Sunoco LP (SUN) : Free Stock Analysis Report

Murphy USA Inc. (MUSA) : Free Stock Analysis Report

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Zacks Investment Research