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 |
