Enterprise Products Partners: Steady Growth and Promising Outlook

Enterprise Products Partners(NYSE: EPD) showcased its reliability with solid fourth-quarter earnings released on Tuesday, while the pipeline operator significantly increases its growth capital expenditures due to emerging opportunities.

The midstream company remains a favorite among income investors, currently offering a forward yield of 6.6% at its present share price.

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Quarterly Performance Meets Expectations

Enterprise Products Partners continues to deliver steady results, which is typical for its fee-based midstream operations. In Q4, total gross operating profit rose by 3% to $2.63 billion. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) saw a 4% increase, reaching nearly $2.6 billion.

The company produced $2.16 billion in distributable cash flow, marking a 5% increase. Although adjusted free cash flow fell year-over-year to $336 million, this is not uncommon as the company embarks on growth initiatives.

With a distribution coverage ratio of 1.8, the company has the ability to increase its payouts in the future. Additionally, it ended the year with a leverage ratio of 3.1, significantly lower than the industry norm of 3.5 to 4.5. A quarterly distribution of $0.535 per unit was declared, a 3.9% hike from the previous year. Remarkably, Enterprise Products Partners has increased its distributions for 26 consecutive years. It also repurchased 2.1 million units for $63 million in the last quarter.

Image source: Getty Images

Upcoming Growth Initiatives

Looking to the future, management plans to invest between $4 billion and $4.5 billion on growth capital expenditures this year, an increase from $3.9 billion in 2024 and a notable rise from $1.6 billion in 2022 when spending was curtailed during the pandemic.

Currently, Enterprise Products Partners has $7.6 billion in major growth projects in progress, most of which are expected to start operations in late 2025 to 2026. Approximately $6 billion worth of projects are planned for this year, with a historical annual return of around 13%, potentially contributing $780 million to EBITDA in 2026 as progress continues.

During its latest earnings call, the company mentioned it has 20 data center projects in Texas that demand 2 billion cubic feet a day of natural gas, along with 15 potential power plant projects requiring another 1.2 billion cubic feet daily. Notably, 15% of the data center initiatives and half of the power plant prospects are advancing well.

However, the Sea Port Oil Terminal (SPOT) project has faced significant delays in permitting, leaving uncertainty on whether a final investment decision can be made this year.

Regarding future forecasts, Enterprise Products Partners anticipates mid-single-digit cash flow growth for 2025, with 2026 poised to be a stronger year based on project completion schedules.

Valuation Highlights

Currently, Enterprise Products Partners trades at a forward enterprise value-to-EBITDA (EV/EBITDA) multiple of 9.8 based on analysts’ 2025 projections. This metric is common for midstream firms as they invest heavily in long-term assets like pipelines. The EV metric accounts for company debt while the EBITDA figure eliminates non-cash depreciation, giving a clearer picture of financial health.

EPD EV to EBITDA data by YCharts.

Enterprise Products Partners’ current EV/EBITDA multiple is below pre-pandemic levels and less than the average multiple of 13.7 for midstream master limited partnerships (MLPs) recorded between 2011 and 2016. Typically, the company trades at a premium for its dependable performance and strong balance sheet.

With growth initiatives on the horizon, investing in this stock now could prove worthwhile, allowing investors to acquire shares at a historically favorable price while enjoying a significant yield as growth progresses.

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Geoffrey Seiler has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.