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Enterprise Products Partners: An Analysis of a Prolific Pipeline Company Enterprise Products Partners: An Analysis of a Prolific Pipeline Company

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Trans Alaska oil pipeline, Atigun canyon

Searching for consistent yield? The energy market presents opportunities amidst its notorious turbulence, particularly in the pipeline/midstream segment. One standout is Enterprise Products Partners (NYSE:EPD), an industry behemoth capitalized at $57.90 billion, boasting a colossal network of over 50,000 miles of pipelines, 300 million barrels of storage for NGLs, crude oil, petrochemicals, and refined products, and 14 billion cubic feet of natural gas storage capacity.

The market stability allows the company to generate significant and reliable cash flows, with a current stock yield of 7.73%, offering an attractive avenue for investment without delving into high-risk assets. While not the most captivating player in the market, Enterprise Products Partners shows solid growth in its top and bottom lines, with shares remaining attractively priced, meriting a ‘buy’ rating at this juncture.

A Rock-Solid Business Model

Back in early November of 2023, an optimistic article about Enterprise Products Partners underscored its resilience amidst market volatility. Despite broader market fluctuations, the company had displayed only a modest 0.5% downside from the previous article, compared to the S&P 500’s 6.8% drop over the same period. Strong fundamentals and an undervalued stock precipitated a ‘buy’ rating. However, fortunes reversed subsequently – though shares are up by 2.1% including dividends since the last article, the S&P 500 has surged by 14.4%.


Amidst this discrepancy, management has maintained exceptional operational performance. In the final quarter of the 2023 fiscal year, the company raked in $14.62 billion in revenue, indicating a 7.1% increase from the prior year. However, revenue alone does not tell the full tale. Equally significant are the margins attained by the company, and here too, Enterprise Products Partners exhibits impressive performance. Net income for the final quarter of 2023 totaled $1.57 billion, a commendable rise from the $1.42 billion generated in the preceding year. As depicted in the chart, every metric of profitability for the company, barring regular operating cash flow, witnessed year-over-year improvement.


This improvement was largely fueled by two operating segments. The Petrochemicals & Refined Products segment made the most significant contribution, accounting for $100 million of the $180 million increase in gross operating margin from the final quarter of 2022 to the last quarter of 2023. Another major driver was the NGL segment, which alone contributed $86 million to the margin expansion. The various factors influencing this upsurge included increased transportation volumes, higher transportation fees, and successful initiation of new facilities.


The final quarter of 2023 stood out, but the year as a whole painted a mixed picture. While revenue declined, profits and several cash flow metrics experienced growth, somewhat offset by certain declines. Nevertheless, 2023 was a rather tumultuous year for the company.


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