As EPD Surges, the Value Story Persists.

Shares of Enterprise Products Partners (EPD) jumped 0.6 % during today's afternoon session, bringing their 52 week performance to 0.4%. The stock seems to be fairly valued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's poor growth indicators and positive market sentiment.

Enterprise Products Partners L.P. provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. The large-cap Utilities company is based in Houston, United States.

EPD's P/E Ratio Is Better Than the Sector Average

Compared to the Utilities sector's average of 22.89, Enterprise Products Partners has a trailing twelve month price to earnings (P/E) ratio of 10.8 and an expected P/E ratio of 10.1. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $2.5 and $2.68 respectively.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Enterprise Products Partners's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.

Enterprise Products Partners Is Overvalued in Terms of Expected Growth

Enterprise Products Partners's PEG ratio is 2.11. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in Enterprise Products Partners's case, it tells us the company is overvalued.

EPD Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Enterprise Products Partners, the P/B value is 2.2 while the average for the Utilities sector is 1.03.

EPD Is Generating Cash

Enterprise Products Partners has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 5.4%, compared to -18.9% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 32.2% and a coefficient of variability of 53.3%:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) FreeCashFlow ($ k) YoY Growth (%)
2022-12-31 8,039,000 -1,964,000 6,075,000 -3.41
2021-12-31 8,512,500 -2,223,200 6,289,300 141.56
2020-12-31 5,891,500 -3,287,900 2,603,600 30.91
2019-12-31 6,520,500 -4,531,700 1,988,800 n/a

Enterprise Products Partners's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Enterprise Products Partners's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Enterprise Products Partners's Gross Margins

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2022-12-31 58,186,000 51,502,000 11.49 -18.16
2021-12-31 40,806,900 35,077,300 14.04 -20.9
2020-12-31 27,199,700 22,371,100 17.75 1.6
2019-12-31 32,789,200 27,061,800 17.47 n/a

Enterprise Products Partners's Operating Margins

Date Reported TotalRevenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2022-12-31 58,186,000 241,000 11.07 -18.18
2021-12-31 40,806,900 209,300 13.53 -20.18
2020-12-31 27,199,700 219,600 16.95 0.77
2019-12-31 32,789,200 211,700 16.82 n/a

Enterprise Products Partners's cost of revenue is growing at a rate of 17.5% in contrast to 3.3% for operating expenses. Sales revenues, on the other hand, have experienced a 15.4% growth rate. As a result, the average gross margins growth is -9.9 and the average operating margins growth rate is -9.9, with coefficients of variability of 19.7% and 19.4% respectively.

Enterprise Products Partners Benefits From Positive Market Signals

The market sentiment regarding Enterprise Products Partners is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $37.0 to $28.0. EPD is trading -15.15% away from its target price of $31.8. 1.0% of the company's shares are tied to short positions, and 26.5% of the shares are held by institutional investors.

Date Reported Holder Percentage Shares Value
2022-12-31 Marquard & Bahls Ag 2% 36,947,247 $996,881,033
2022-12-31 Alps Advisors Inc. 1% 27,987,437 $755,134,614
2022-12-31 Blackstone Inc 1% 25,739,184 $694,474,052
2022-12-31 Blackrock Inc. 1% 24,387,752 $658,010,796
2022-12-31 Morgan Stanley 1% 20,745,030 $559,725,788
2022-12-31 Neuberger Berman Group, LLC 1% 18,694,595 $504,402,592
2022-12-31 Goldman Sachs Group Inc 1% 16,828,953 $454,065,334
2022-12-31 Sarofim, Fayez & Co 1% 15,965,478 $430,767,743
2022-12-31 Energy Income Partners, LLC 1% 15,756,090 $425,118,203
2022-12-31 American Century Companies, Inc. 1% 15,165,195 $409,175,148
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.