3 Reasons to Buy Enterprise Products Partners Stock Like There’s No Tomorrow

Mr. Consistency

When you are hunting for solid long-term investments in the midstream energy space, look no further than Enterprise Products Partners (EPD). This master limited partnership (MLP) has demonstrated remarkable consistency and resilience over the years, having raised its distribution for 26 consecutive years—a feat few companies in the sector can boast.

So, what fuels this consistency? The answer lies in Enterprise’s largely fee-based model, which minimizes its exposure to commodity price fluctuations and spread risks. An impressive **90% of its contracts include inflation escalators**, safeguarding its revenue stream.

Moreover, Enterprise has historically adopted a conservative approach to **leverage**, maintaining a healthy **distribution coverage ratio** and prudent **growth capital expenditure (capex)** spending. The stock currently offers a forward yield of approximately **6.2%**, and the last quarter revealed a distribution coverage ratio of **1.7**.

The balance sheet is another feather in Enterprise’s cap, with net debt standing at **three times adjusted EBITDA** and an investment-grade rating on its debt. The average cost of debt at **only 4.7%** is a boon in today’s high-interest-rate environment, setting the stage for continued distribution increases in the future. If consistency is key, then Enterprise has the master key.

Growth Opportunities

Buckle up, because Enterprise is shifting gears on growth. After reducing growth projects during the pandemic, the company is ramping up its capital expenditures significantly. For **2024**, Enterprise plans to allocate between **$3.5 billion and $3.75 billion** towards growth-related projects, increasing that to **$3.5 billion to $4 billion** in 2025. This surge in spending is largely fueled by the company’s recent acquisition of **Pinon Midstream**.

Since 2018, the average return on invested capital (ROIC) for Enterprise on growth projects has been about **13%**. With **$6.9 billion** in projects currently under construction, we can anticipate a noticeable uptick in growth in the latter half of **2025** and even more prominently in **2026**. As a reference, every **$1 billion** invested in growth projects has historically led to approximately **$130 million** in additional annual gross operating profit.

What’s more, **demand for natural gas** is on the rise as data centers, powered predominantly by AI, are consuming more energy than ever. During its recent earnings call, Enterprise highlighted this demand spike as one of the most promising signals for natural gas it has seen in years. That’s big, folks, and Enterprise is well-positioned to capitalize on this burgeoning opportunity.

Attractive Valuation

Despite the robust performance this year, Enterprise’s stock is still trading at an attractive valuation from a historical standpoint. With an enterprise-value-to-EBITDA (EV/EBITDA) multiple of **10.5**, based on analyst estimates for the year, the stock presents a compelling buying opportunity.

The EV/EBITDA metric is pivotal for midstream companies because it accounts for debt while stripping out non-cash depreciation costs over the lifespan of assets. Before the pandemic, Enterprise’s stock frequently traded with an EV/EBITDA multiple exceeding **15**. Additionally, the MLP sector as a whole has averaged an **EV/EBITDA multiple of 13.7** between **2011 and 2016**.

This scenario suggests that Enterprise has substantial room for its multiple to expand, particularly given its growth potential and the favorable regulatory climate ushering in a more pro-energy administration.

Conclusion: Buy at Current Levels

In summary, investors looking for stability, growth, and attractive valuations should consider piling into Enterprise Products Partners stock without hesitation. Its untarnished track record, robust growth potential, and alluring valuation provide all the ingredients for a winning investment recipe.

So, trade with confidence and add Enterprise Products Partners (EPD) to your portfolio today. Don’t let the opportunity slip away!