Enterprise Products Partners Shines Amid Market Volatility

Despite recent sell-offs in the Stock market, Enterprise Products Partners (NYSE: EPD) has shown resilience in early 2025, posting a year-to-date price increase of approximately 7% as of this writing. Let’s explore the reasons why this Stock remains a viable investment option, particularly while trading below $35.

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Reliability in Earnings

Investors are drawn to Enterprise Products Partners for its impressive distribution and forward yield, which currently stands at 6.4%. However, the appeal extends beyond its high yield; Enterprise is recognized for its consistent performance.

This master limited partnership (MLP) has raised its distribution for 26 consecutive years, demonstrating resilience across fluctuating energy markets and economic conditions. This consistency highlights both a robust business model and prudent management practices.

Historically, over 80% of the company’s revenue stems from fee-based services, with 90% of contracts featuring inflation escalation provisions. Fee-based contracts ensure steady income, insulated from market volatility, and many incorporate take-or-pay clauses, which guarantee revenue regardless of actual service usage. Approximately half of Enterprise’s fee-based contracts include these provisions, providing clarity for future cash flows and EBITDA (earnings before interest, taxes, depreciation, and amortization)—key metrics for evaluating midstream companies.

Moreover, Enterprise maintains a conservative approach to its balance sheet, a necessity for capital-intensive midstream operations that rely on heavy investment in pipeline and facility infrastructure. Presently, Enterprise’s leverage (net debt adjusted for equity credit in junior subordinated notes/EBITDA) is around 3.1 times. This is considered low for the industry and supports the company’s investment-grade debt rating.

The company’s distribution is firmly supported, with a coverage ratio of 1.7 based on its distributable cash flow (DCF) for 2024, which reflects operating cash flow after accounting for maintenance capital expenditures. These fundamentals indicate that Enterprise can sustain its distribution growth well into the future.

Image source: Getty Images

Strategic Growth Initiatives

Enterprise is not only cautious but also strategically agile, recognizing the current favorable environment for fossil fuels and the growing energy demands sparked by advancements in artificial intelligence (AI).

To capitalize on this momentum, the company plans to escalate its growth capital expenditures (capex). After lowering its growth capex to $1.6 billion in 2022 and $1.8 billion in 2021, Enterprise anticipates ramping up to spend between $4 billion and $4.5 billion in 2025, following a $3.9 billion investment in 2024.

The company is currently involved in $7.6 billion worth of growth projects, with $6 billion of these initiatives set to launch within this year. This activity is poised to drive significant growth moving into the second half of 2025 and into 2026.

Much of this growth focuses on the Permian Basin, noted for being the leading oil region in the U.S. It also holds some of the cheapest natural gas in the nation, providing Enterprise with a strategic advantage in supporting energy requirements for AI data centers.

Currently, Enterprise has 20 data center projects in development and 15 potential power plant initiatives. Progress has been gradual, with only 15% of data center projects and about half of the power plant projects advancing. Nevertheless, this represents another growth opportunity for the company.

Valuation Metrics Favorable for Investors

In addition to a steady performance record and upcoming opportunities in a conducive midstream and energy environment, Enterprise’s Stock is attractively valued historically. It currently trades at an enterprise value (EV)-to-EBITDA multiple of 10, a standard metric for assessing midstream firms.

EPD EV to EBITDA (Forward) data by YCharts

This compares favorably to the average EV/EBITDA multiple of 13.7 for midstream MLPs between 2011 and 2016. Enterprise has typically traded at a premium within its sector, thanks to its solid financial health, conservative strategy, and reliability.

With its shares priced below $35, Enterprise Products Partners represents an appealing prospect for income-focused investors seeking capital appreciation potential.

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Geoffrey Seiler holds 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 the author’s and do not necessarily reflect those of Nasdaq, Inc.