Enterprise Products Partners: Pumping profits
This midstream MLP churns out steady and growing returns
By Geoffrey Seiler, BullMarket.com
Ho. Hum. Enterprise Products Partners (EPD) delivered another quarter of better than expected cash flow, profits, and overall growth to complement its recently increased distribution.
It's consistently solid execution would almost be boring if it wasn't so good for its investors. The midstream energy firm remains one of our favorite stocks for the long term.
The master limited partnership reported record distributable cash flow (DCF) of $856 million for the third quarter, which represented a distribution coverage ratio of 1.7x. Enterprise retained approximately $341 million of its DCF to fund future expansion efforts.
DCF for Q3 included $190 million of net proceeds from asset sales, including its sale of 4.1 million common units of Energy Transfer Equity (ETE) in July 2011.
Excluding proceeds from asset sales, DCF was still a record $666 million, which represented a still-strong 1.3x coverage ratio.
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The company announced last month that it was boosting its quarterly payout to 61.25 cents per unit, or $2.45 annualized. The quarterly distribution increase was its 29th in a row.
Enterprise generated $11.33 billion in revenue, up from $8.07 billion in Q3 2010, with a gross operating margin of $973 million.
Operating income grew to $681 million from $543 million a year ago. Adjusted EBITDA was also a record $956 million, compared with $836 million last year.
The company reported net income of $471.4 million, or 55 cents per share, up from just $37.0 million, or 18 cents per share, in the year-ago quarter.
This was simply another exceptional quarter from Enterprise, which was aided by the strong NGL environment. The company shows no sign of slowing down given the numerous announcements of new growth projects.
The joint venture with Enbridge to bring lower-priced crude from Cushing to Gulf Coast refineries and the project to bring ethane from the Marcellus and Utica shale plays to the Gulf are potential game changers.
With 75% of the initial capacity for the proposed Marcellus pipeline locked in with Chesapeake, the project already looks like a winner if Enterprise can get it built.
Given its track record with other projects, its prospects are as good as anyone's, though there are a number of regulatory and other hurdles to over come.
Projects already in the pipeline and under construction, in the meantime, point to strong future organic growth.
It has a great management team, a track record for consistent distribution increases, a solid coverage ratio, and strong growth initiatives.
Given those strengths and a cost-of-capital advantage from buying out its GP, we see few reasons Enterprise can't continue to churn out years of steady and growing returns. We continue to rate the stock a "Buy' and view the stock as a core holding.
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