Best-in-Class Enterprise Products Is Undervalued
We believe it has a sizable opportunity in NGL exports.
While many other midstream operators are playing checkers, Enterprise Products Partners (EPD) is playing chess. It is the pre-eminent midstream infrastructure company, vertically integrated with best-in-class assets at nearly every point in the midstream value chain. It can aggregate supply of every type of hydrocarbon from multiple sources in major producing basins (Permian, Eagle Ford, DJ, Piceance, Green River) and deliver it to multiple end markets (refiners, petrochemicals, exports). These assets are the linchpins for both shippers and end users.
The company has built out a dominant position in natural gas liquids. Its Houston Ship Channel and Beaumont Terminal and its Mont Belvieu assets (NGL fractionation, storage, pipelines) means it will be the primary beneficiary as U.S. NGL exports increase in the coming years. The partnership generates nearly 60% of its gross operating margin from this business. We view the forthcoming NGL demand-pull toward the Gulf Coast as the key growth driver for Enterprise. From its vast NGL system, Enterprise’s connection with every ethylene cracker on the Gulf Coast, its sold-out propane dehydrogenation splitter, and the upgraded isobutylene unit make it adept at converting low-cost NGLs into higher value-added olefins. We expect its dominance in this area to grow materially over the coming years, supporting healthy growth prospects.
Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.