Enterprise Products Partners (EPD) is a midstream MLP; its assets include some 50,000 miles of pipelines, 260 million barrels of storage capacity for Natural Gas Liquids and crude oil; and14 billion cubic feet of natural gas storage capacity, notes Ben Reynolds, editor of Sure Retirement.
Profits in the second quarter nearly doubled year-over-year thanks to record volumes of crude oil and natural gas liquids. The partnership also posted a quarterly record for adjusted EBITDA, as it increased 18% to $2.1 billion.
Future growth will come from new projects. For example, Enterprise Products has started construction of the Mentone cryogenic natural gas processing plant in Texas, which will have the capacity to process 300 million cubic feet per day of natural gas and extract more than 40,000 barrels per day of natural gas liquids.
The facility is expected to begin service in the first quarter of 2020. Also expected to begin service in 2020 is the Shin Oak NGL Pipeline, which will have a total capacity of 600,000 barrels per day. Exports are another growth catalyst.
Demand for liquefied petroleum gas (LPG) and liquefied natural gas (LNG) is growing at a high rate across the world, particularly in Asia. Enterprise Products’ total crude oil, NGL, petrochemical, and refined products exports currently exceed 1.6 million barrels per day.
We expect 4% annualized growth from Enterprise Products Partners ahead. Enterprise Products Partners is likely the safest MLP in our investment universe. It sports an investment-grade credit rating of BBB+ from Standard & Poor’s and Baa1 from Moody’s, higher than the majority of MLPs.
Its distribution safety is also very strong. The partnership reported a distribution coverage ratio of 1.5x in 2018 and has started 2019 off with a 1.7x ratio in Q1 and 1.8x ratio in Q2.
The partnership’s price-to-EBITDA multiple is 8.3 today. If Enterprise Products Partners’ EBITDA multiple can revert to its long-term average over the next 5 years, this will boost its total returns by 3.8% per year.
Overall, we believe Enterprise Products is capable of delivering annualized returns of 13.9%, composed of distribution payments (6.1%), per-unit EBITDA growth (4%), and valuation expansion (3.8%).
