We view Enterprise Products Partners LP (EPD) as both a steady and consistent provider of revenue and EBITDA growth, in just about any energy environment, with a balance sheet that carries a below-industry average leverage position, asserts analyst Bill Selesky of Argus Research.

Looking ahead, EPD should benefit from recovery in G&P volumes and operating leverage on vertically integrated assets, as well as reopening demand sensitivities on certain Petrochemical assets (primary petrochemicals, octane enhancement and refined product pipelines).

With respect to long-term growth, we note that EPD has a leading position across the natural gas and NGL value chain in some of the largest-producing basins in the U.S.

It also has about $3.9 billion in growth projects that are expected to enter service over the next several years, and, despite the impact of the pandemic, will continue to invest in natural gas, NGL, and crude oil infrastructure to support shale play development.

The growth in hydrocarbon production from shale basins and unconventional drilling has resulted in structural cost advantages for petrochemical production in the U.S. and has increased NGL demand from the petrochemical industry.

This should boost earnings visibility and support growth in the distribution. EPD has the highest distributable cash flow coverage ratio in our MLP coverage universe.

On January 7, 2021, EPD announced its 22nd consecutive year of distribution increases, to $0.45 per unit, or $1.80 annually, up 1% from the prior-year quarter. The annualized payout yields about 8.1%.

Reflecting volatile energy market conditions, management plans to keep the distribution unchanged in the near term. Our distribution estimates are $1.80 for both 2021 and 2022.

To value the stock on a fundamental basis, we use peer group and historical multiple comparisons, as well as a dividend discount model. We currently view the shares as attractive.

The shares are trading at 10.1-times our 2021 EPS estimate and at 9.5-times our 2022 forecast, compared to a 10-year annual average range of 15-21. On other valuation metrics, the shares are trading below the low end of its historical range for price/book, price/cash flow and price/ EBITDA.

We believe that these relatively low multiples are highly unwarranted, based on EPD’s size, geographic reach, and broad product portfolio.

We expect EPD to be the beneficiary of an eventual flight to quality, aided by a well-regarded management team. We also believe that the “outsized” dividend is safe and sustainable, and note that the company has paid increasing dividends for the past 22 consecutive years.

Our price target of $26 implies a multiple of 10.9-times our 2022 EPS estimate and a total potential return, including the dividend, of 24% from current levels.

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