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What’s behind EnLink Midstream’s High Implied Volatility?

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Midstream stocks with high implied volatilities

EnLink Midstream (ENLC) rose 48.4% in the past year ending on January 30, 2017. It has the highest implied volatility of all the midstream companies that make up the Alerian MLP ETF (AMLP). In the past five days, EnLink Midstream fell 1.6%.

The above table shows the one-year and last-five-day returns of the units we identified in the previous part of this series as having high and low implied volatilities. It shows how high volatility stocks have generally moved sharper, or fell more, compared to low volatility stocks.

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While Western Refining Logistics (WNRL) rose the most among the midstream stocks with high implied volatility in the past five days, Enbridge Energy Partners (EEP) lost the most. On January 30, 2017, Enbridge Energy Partners stock fell 10.9%. Its units have been under pressure after the company announced its financial outlook. We discussed it in Part 1 of this series. On January 30, 2017, analysts at UBS, Mizuho, RBC, and Ladenburg Thalmann reduced their targets for Enbridge Energy Partners.

NGL Energy Partners (NGL) rose the most in the past year among the list of high implied volatility midstream stocks. In the last four quarters, NGL Energy Partners’ revenue fell 4.6%, while its operating loss was $36.6 million in 3Q16—compared to an operating income of $0.9 million in 3Q15. NGL Energy Partners’ operating profit margin is 0.9%—compared to the industry median of 3.9%.

Western Refining Logistics (WNRL) rose the least in the past year among the high implied volatility midstream stocks. In the past four quarters, Western Refining Logistics’ revenue fell 16.4% and its operating profit fell 27.7%. Western Refining Logistics’ operating profit margin is 3.7%—compared to the industry median of 3.9%.

Returns of midstream stocks with low implied volatilities

Among the low volatility midstream stocks, Enterprise Products Partners (EPD) rose the least in the past year among our low implied volatility midstream stocks. In last four quarters, Enterprise Products Partners’ revenue rose 5.3%. Its operating profit margin is 14.5%—compared to the industry median of 3.9%.

In the next part of this series, we’ll look at the midstream stocks with the highest short interest-to-equity float ratios.

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