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Equity Bottom-Up

Enterprise Products Partners / Equity Bottom-Up

<div class="content-highlight"><h2>The wide-moat midstream partnership remains at the center of strongly positive industry trends.</h2></div><p><a href="https://www.smartkarma.com/entities/enterprise-products-partners" target="_blank" data-smartkarma-citation="entities:22867:1">Enterprise Products Partners (EPD US)</a> remains at the center of many important midstream trends: the ongoing and substantial growth in U.S. hydrocarbon volumes, the emergence of U.S. natural gas liquids and oil exports, and changes in investors' perception of the industry. We believe the partnership is undervalued, as investors do not appreciate the positive impact of over $5 billion in projects starting up this year, which should contribute to gross operating margin increasing about 7% annually over the next five years. Our 2021 estimate for Enterprise's EBITDA is 6% above consensus. We also think investors lack an appreciation for Enterprise's ability to opportunistically take advantage of market dislocations, exemplified by the partnership landing new Permian projects recently when differentials blew out. Enterprise is now looking to expand liquefied petroleum gas capacity via brownfield means, making it more difficult for potential entrants such as Oneok to earn attractive returns.</p><hr><h2>Key Takeaways</h2><ul>
<li>We expect above-consensus U.S. NGL exports, increasing to nearly 3 million barrels per day by 2022. Enterprise can earn fees from pipelines, fractionation, storage, and export facilities related to this increase. Enterprise is by far the industry leader in NGL exports across ethane and liquefied petroleum gas.</li>
<li>Our above-consensus forecast calls for U.S. crude-oil exports of nearly 6 million bpd by 2023, and Enterprise is moving forward with a 2 million bpd export facility, which we expect on line in 2022.</li>
<li>Enterprise continues to be a leader in attempts to improve the midstream industry's image with investors, having recently started to highlight free cash flow, initiating a large $2 billion unit buyback program, and setting and achieving its self-funding goal (thus eliminating equity issuances) a year ahead of schedule.</li>
<li>Enterprise already trades below our bear case of $29.50 per unit, as investors are unwilling to give the partnership much credit for improvements since 2015 when it last traded above $30. We believe our bear-case scenario captures the likely outcome if international demand for NGLs weakens during a slowdown in global growth. It also reflects a drop in growth from delays in U.S. steam crackers coming on line.</li>
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The wide-moat midstream partnership remains at the center of strongly positive industry trends.Enterprise Products Partners (EPD US) remains at the center of many important midstream trends: the ongoing and substantial growth in U.S. hydrocarbon volumes, the emergence of U.S. natural gas liquids and oil exports, and changes in investors' perception of the industry. We believe the partnership is undervalued, as investors do not appreciate the positive impact of over $5 billion in projects starting up this year, which should contribute to gross operating margin increasing about 7% annually over the next five years. Our 2021 estimate for Enterprise's EBITDA is 6% above consensus. We also think investors lack an appreciation for Enterprise's ability to opportunistically take advantage of market dislocations, exemplified by the partnership landing new Permian projects recently when differentials blew out. Enterprise is now looking to expand liquefied petroleum gas capacity via brownfield means, making it more difficult for potential entrants such as Oneok to earn attractive returns.Key Takeaways
We expect above-consensus U.S. NGL exports, increasing to nearly 3 million barrels per day by 2022. Enterprise can earn fees from pipelines, fractionation, storage, and export facilities related to this increase. Enterprise is by far the industry leader in NGL exports across ethane and liquefied petroleum gas.
Our above-consensus forecast calls for U.S. crude-oil exports of nearly 6 million bpd by 2023, and Enterprise is moving forward with a 2 million bpd export facility, which we expect on line in 2022.
Enterprise continues to be a leader in attempts to improve the midstream industry's image with investors, having recently started to highlight free cash flow, initiating a large $2 billion unit buyback program, and setting and achieving its self-funding goal (thus eliminating equity issuances) a year ahead of schedule.
Enterprise already trades below our bear case of $29.50 per unit, as investors are unwilling to give the partnership much credit for improvements since 2015 when it last traded above $30. We believe our bear-case scenario captures the likely outcome if international demand for NGLs weakens during a slowdown in global growth. It also reflects a drop in growth from delays in U.S. steam crackers coming on line.


Enterprise Is an Undervalued Exports Powerhouse