Enterprise Wraps Up Challenging 2020
We will maintain our $25.50 fair value estimate and wide moat rating.
Enterprise Products Partners (EPD) wrapped up a challenging 2020 with a solid fourth quarter. As we expect reduced marketing opportunities in 2021 due to narrower spreads, it will be challenging for Enterprise to replicate the $500 million-$600 million in extra 2020 marketing contributions. Thus, we expect 2020 results of $8 billion in adjusted EBITDA to be repeated in 2021, as the loss in marketing contributions is offset by new projects coming online. We will maintain our $25.50 fair value estimate and wide moat rating.
Enterprise's major capital allocation efforts remained largely unchanged--2021 and 2022 growth capital spending remained set at $1.6 billion and $800 million, down from $3 billion in 2020. With distributions held nearly flat, we estimate Enterprise could have about $800 million in adjusted free cash flows after capital spending and distribution payouts to allocate toward unit buybacks or reducing leverage. Enterprise bought back $200 million in units in 2020, about 3% of its distributable cash flow, a bit above management's 2% guidance for 2020. Management cited market uncertainty at this point and wouldn't commit to a new target for 2021, but we believe there's clearly substantial opportunities for Enterprise to do so, especially given buybacks from peers such as Magellan and MPLX.
From a growth perspective, we think the best near-term opportunities lie in renewables and petrochemicals. Enterprise is evaluating several renewables investments, and also plans to source 25% of its own power needs from renewables by 2025. Petrochemicals was the strongest area of performance during the quarter, as we estimate full-year petrochemicals gross operating margin was $764 million, up from 2019's $690 million, with $222 million in the fourth quarter compared with $144 million in 2019, thanks to contributions from the new PDH plant. Enterprise is targeting a midpoint of $1.3 billion in petrochemicals gross operating margin by 2024.
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Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.