With its impressive third quarter results, Enterprise Products Partners L.P. (EPD) has now delivered 12 straight positive earnings surprises and also announced its 33rd quarterly distribution increase in a row.
With a distribution yield of 5.2% and a long-term earnings growth projection of 8.5%, this Zacks #2 Rank (Buy) midstream energy company appears to be a solid pick for investors looking for both income and capital appreciation.
Strong Third Quarter
On November 1, Enterprise Products Partners reported third quarter adjusted earnings per limited partner unit of 68 cents, outpacing the Zacks Consensus Estimate by 13.3% and last year's earnings by 23.6%. Higher volumes of crude, natural gas and other commodities through its pipelines led to the improvement. This pipeline operator has recorded positive earnings surprises in the last twelve quarters with an average beat of around 10.0%.
Record oil and natural gas pipeline volumes, as well as record fee-based natural gas processing volumes, also contributed to the positives. These were mainly buoyed by more than $4 billion in capital investments that the partnership made over the last 12 months.
Enterprise Products Partners transported 4,299 thousand barrels per day of natural gas liquids (NGL), crude oil, refined products and petrochemical products, representing a 6% increase on a year-over-year basis. Natural gas pipeline volumes also increased almost 12% in the third quarter.
History of Increasing Distributions
EPD has set a track record of consistent distribution growth. On October 10, the partnership hiked its third quarter 2012 cash distribution to 65 cents per unit ($2.60 per unit annualized), representing an increase of approximately 6.1% year over year and 2.4% sequentially.
Importantly, this latest payout marks the 33rd consecutive quarterly distribution hike by the pipeline operator and the 42nd distribution rate increase since its initial public offering in 1998. Again, this distribution leads to a healthy coverage ratio of 1.3x.
Solid Organic Projects
The pipeline operator's growth visibility remains solid and it is supported by around $8 billion of project inventory through 2015. Enterprise Products Partners expects to bring online approximately $4 billion of projects through year-end 2013. Between 2014-2015, an additional $4 billion of projects will likely come into service. The partnership remains busy on its large expansion capex program that includes Seaway crude pipeline reversal Phase I, several Eagle Ford projects, ECHO crude oil terminal Phase I and Mt. Belvieu Fractionator. This project inventory is also expected to provide additional organic opportunities beyond 2015.
Surge in Earnings Momentum
The past 30 days have seen 7 of 10 estimates for 2012 move higher, boosting the Zacks Consensus Estimate by nearly 2% to $2.59. The Zacks Consensus Estimate for 2013 has also advanced by nearly 2% to $2.67, as 9 of 15 estimates headed higher.
With the 2011 profit level at $2.21 per unit, the projected growth rate stands at 17.2% for the current year. The annual growth rate is expected to be 3.1% in 2013, provided Enterprise Products Partners meets the estimate.
With respect to its valuation metrics, units of Enterprise Products Partners look reasonable on a P/E basis. The stock is trading for about 19.4 times forward estimates, a 15.8% discount to the peer group average of 23.1x.
The partnership has a trailing 12-month return on equity (:ROE) of 18.7%, which is in-line with the peer group average.
Market Performance & Technicals
The chart below shows that the stock has been almost consistently trading above its 200 days moving average, except for a small hiccup in June. Again, the unit price has outperformed the S&P 500 for the past twelve months and has delivered a return of approximately 11.7% during the period, versus 9.2% for the benchmark. This positive momentum is likely to persist on the back of expected higher payouts.
Enterprise Products Partners, L.P., a leading North American master limited partnership (MLP), is engaged in providing a wide range of midstream energy services to the producers and consumers of natural gas, NGL, and crude oil.
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