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EPD’s 3Q16 Results: Is a Recovery in Energy Coming Soon?

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Dec. 4 2020, Updated 3:52 p.m. ET

Jim Teague on the energy industry

On the current state of the energy industry, Enterprise Products Partners’ (EPD) CEO, Jim Teague, said in its 3Q16 earnings release, “We are optimistic that the energy industry has weathered the harshest part of this cycle and very proud of how our businesses continued to perform. While the industry may still experience bouts of commodity price weakness and volatility, we believe it has a firmer foundation going into 2017 as the gap between supply and demand has narrowed and should continue to do so.”

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Teague went on to say, “We are seeing significant ‘green shoots’ of producer activity as a result of the opportunity to hedge future sales of crude, NGLs and natural gas at economic levels. In addition to the acceleration of investment in the Permian Basin, we are seeing activity attributable to new discoveries, deployment of new technology, including in well-established areas such as the Eagle Ford and Haynesville; and changes in ownership of acreage as some producers emerge from restructuring.”

Expected increase in demand

Relating to expectations of a rise in natural gas and NGLs (natural gas liquids) demand, Teague said, “From the perspective of consumers of energy, a substantial increase in demand for natural gas and NGLs is expected from new domestic petrochemical, natural gas-fired power plants and LNG facilities under construction and scheduled to begin operations over the next one to three years.”

He added, “Through the end of 2017, five new ethylene facilities on the U.S. Gulf Coast are scheduled to begin operations that represent 333,000 barrels per day, or 30 percent increase in demand for ethane. In addition, certain refining and petrochemical customers are evaluating new facilities or modifications to existing facilities that will require additional midstream energy infrastructure.”

Analysts’ recommendations

Of the analysts surveyed by Bloomberg, ~87% have rated EPD as a “buy,” and ~13% have rated the company as a “hold.” The consensus target price for EPD is $32.5. Its units are currently trading at $26.1. If EPD attains its target price within a year, it could mean a 25% price return for investors.

As for other midstream companies, 58% of analysts have rated Magellan Midstream Partners (MMP) as a “buy,” and 39% have rated Plains All American Pipeline (PAA) as a “buy.”

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