Enterprise Products Stock Rises 25% YTD: Should You Buy Now or Avoid it?

Year to date (YTD), Enterprise Products Partners LP EPD has gained 24.6%, trailing the industry’s 33.2% surge. The partnership also underperformed leading midstream energy companies, such as Kinder Morgan Inc. KMI and The Williams Companies Inc. WMB, which recorded growth of 57.4% and 57.7%, respectively, over the same period. Despite these challenges, EPD’s long-term outlook remains promising, supported by a robust pipeline of major projects.YTD Price Chart Image Source: Zacks Investment ResearchBefore considering the appropriate investment strategy for the stock, let’s delve into some key fundamentals of this energy leader.EPD's $7B Growth Pipeline and Attractive Yield PotentialEnterprise Products, a top-tier North American midstream service provider, boasts a vast and diversified asset portfolio. This includes more than 50,000 miles of pipelines and a storage capacity of 300 million barrels. Shippers utilize these assets in long-term contracts to transport and store natural gas liquids, crude oil, refined products and petrochemicals. The partnership also has 14 billion cubic feet of natural gas storage capacity, securing stable fee-based revenues. Additionally, EPD is set to generate additional fee-based earnings with $6.9 billion worth of major capital projects currently in service or under construction. These project backlogs will not only secure stable cashflows but will also generate handsome unit-holder returns.Supported by its stable and resilient business model, Enterprise Products has achieved 26 consecutive years of distribution hikes. The current distribution yield of the partnership is 6.9%, higher than 6.1% of the composite stocks belonging to the industry.Distribution Yield Image Source: Zacks Investment ResearchSour Gas to Big Data: EPD's Path to Greater EfficiencyEPD has acquired Piñon Midstream, strengthening its ability to process natural gas in the Permian – the most prolific basin in the United States. This includes adding special equipment to clean "sour" natural gas (gas with impurities like sulfur) and safely handle unwanted byproducts like acid gas. These new facilities will fit into EPD's existing system for handling natural gas liquids (NGLs), making its operations more efficient and comprehensive.Also, the partnership uses advanced technology to make its pipelines run more efficiently and profitably. They analyze massive amounts of data in real-time to predict issues, plan maintenance and optimize operations.EPD to Capitalize on Promising Market OpportunitiesData centers and gas-fired power plants are expected to drive demand for natural gas, supported by initiatives like the Texas Energy Fund. Enterprise Products is among the few midstream players with the infrastructure—such as pipelines and storage facilities—to meet this demand efficiently. This makes the partnership uniquely capable of tapping into this growing market???.Ethylene is a critical component in many industrial applications. U.S. production is highly competitive because it uses ethane (a byproduct of natural gas) as feedstock, which is cheaper than the naphtha used in Europe. Enterprise Products anticipates growing opportunities to export ethylene, especially to Europe, where some smaller and less efficient chemical plants may shut down. This could increase demand for U.S. exports.Time to Keep an Eye on EPD?Despite advancements, the partnership faces certain uncertainties in its operations. For instance, the Bahia pipeline project experienced minor delays due to permitting issues, pushing timelines into later quarters and potentially affecting near-term revenues.Also, high sustaining capital expenditures, totaling $640 million for 2024, exceeded the partnership’s original estimates due to maintenance needs. Growth capital expenditures also remain elevated, potentially straining cash flow.Despite these challenges, which have partly contributed to the partnership's YTD performance lagging the broader industry composite, many analysts remain confident that the midstream energy leader will achieve top-tier margins. Additionally, with EPD appearing undervalued, some investors may see an opportunity to bet on the stock. This is evident from its current valuation of 10.01x trailing 12-month Enterprise Value/EBITDA, which trades at a discount compared to the industry average of 11.70x. Image Source: Zacks Investment ResearchHowever, investors may want to exercise caution and wait for the uncertainties to clear before taking a position in the stock, which currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Notably, Wall Street’s average price target on EPD suggests a 13.6% increase from its recent closing price of $30.53, with the highest target reaching $39, representing a potential gain of 27.7%. This indicates that current unitholders could see significant short-term benefits. Image Source: Zacks Investment ResearchZacks Names #1 Semiconductor StockIt's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Williams Companies, Inc. (The) (WMB): Free Stock Analysis Report Enterprise Products Partners L.P. (EPD): Free Stock Analysis Report Kinder Morgan, Inc. (KMI): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks