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Enterprise Products Partners Is Compelling and Undervalued

Enterprise Products Partners reports another record-breaking quarter, with more good results ahead.


Stephen Ellis: Enterprise Products Partners is a wide-moat midstream partnership that we see as undervalued. We think the firm has a generally good outlook, as its earnings should benefit from $5.4 billion in projects placed in service last year, and should also benefit from another nearly $8 billion in backlog that should come online by 2023. It was also important to note that roughly 86% of Enterprise's gross operating margin is fee-based.

On the capital allocation front, Enterprise is making improvements there as well. Growth capital spending is expected to decline to a midpoint of $2.5 billion in 2021, from $3.5 billion in 2020 and $4.3 billion in 2019. This frees up cash for unit buybacks, which we think is a great idea given the stock's undervaluation. Enterprise has initially targeted about $130 million in buybacks. However, we think that it could buy conceivably up to $1 billion this year if it uses debt to fund its buyback. Alternatively, it could buy up to $2 billion in units by 2023 using excess cash after distributions and stock.

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Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.