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An Undervalued, Wide-Moat Name in the Energy Sector

An Undervalued, Wide-Moat Name in the Energy Sector

Stephen Ellis: I'd like to talk about Enterprise Product Partners, which is a wide-moat name. We have a $30 fair value estimate on it.

We see Enterprise is undervalued for three reasons. First, frac spreads have more than doubled this year, and this will really benefit Enterprise's gathering and processing operations through higher spreads. Second, we expect NGL volumes as well as oil volumes to substantially increase over the next few years, and this will benefit Enterprise's unutilized pipelines without necessarily requiring the incremental capital expenditures, therefore boosting returns on capital. Third, we see Enterprise is undervalued because of its export position on the Gulf Coast. In 2016, it handled about 50% of the LPG volumes exports for the U.S. We think as increasingly NGLs get pulled toward the Gulf Coast because of wider international differentials, a lot of Enterprise's assets would be involved here and therefore benefit from higher fees.

For those three reasons we see Enterprise as undervalued.

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About the Author

Stephen Ellis

Strategist
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Stephen Ellis is an energy and utilities strategist for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc., covering midstream companies. Ellis is a former member of Morningstar’s China Economic Committee, which provides research on the long-term outlook for the Chinese economy.

Before assuming his current role in 2017, he was director of equity research for financial services and a senior equity analyst. He is also a former editor of the Morningstar Opportunistic Investor newsletter and a former member of the Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic MoatTM and Moat TrendTM ratings issued by Morningstar.

Prior to joining Morningstar in 2007, he worked as a freelance analyst for The Motley Fool and spent three years working in project and financial analysis for Environmental Systems Research Institute (ESRI), a supplier of geographic information system software and geodatabase management applications.

He holds a bachelor’s degree in business administration and a master’s degree in business administration from the University of Redlands.

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