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Is EnLink Midstream Partners a ‘Buy’ before Its 3Q17 Earnings?

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Nov. 20 2020, Updated 11:56 a.m. ET

EnLink Midstream Partners’ market performance

In general, EnLink Midstream Partners (ENLK) and the midstream sector have been weak in recent trading sessions. EnLink Midstream Partners has lost 5.5% since the beginning of the month through October 24. At the same time, the Alerian MLP ETF (AMLP) has lost 5.7%. The recent weakness in the midstream sector despite strong crude oil could be attributed to the recent decline in US drilling activity. EnLink Midstream Partners has lost 6.6% since the beginning of the third quarter, while crude oil has risen 14.0%. Overall, EnLink Midstream Partners has lost 14.5% in 2017 as of October 24, 2017. EnLink Midstream Partners’ peers, Crestwood Equity Partners (CEQP), Enable Midstream Partners (ENBL), DCP Midstream (DCP) have lost 4.8%, 3.9%, and 13.1%, respectively, in 2017.

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EnLink Midstream Partners’ valuation

EnLink Midstream Partners was trading at a forward EV-to-EBITDA multiple 11.1x as of October 24, which is below the historical five-year, two-year, and one-year average of 11.3x, 11.2x, and 11.9x, respectively. However, it was trading above the peer median multiple of 10.7x as of October 24.

EnLink Midstream was trading at a distribution yield of 9.8% as of October 24. The ratio is above the historical five-year average of 7.8%. Notably, EnLink Midstream Partners’ distribution yield is higher than the SPDR S&P 500 ETF (SPY) (SPX-INDEX) (1.9%) and the Alerian MLP ETF (8.5%).

Both of the metrics indicate that the partnership is trading at a discount to its historical valuation. It might indicate a buying opportunity considering its strong position in the prolific STACK and Delaware regions, expected improvement in natural gas processing and NGLs margins due to strong crude oil prices, and low leverage. At the same time, EnLink Midstream Partners’ current valuation might reflect its flat distributions and lower drilling activity in the Barnett and Eagle Ford regions.

Analysts’ ratings for EnLink Midstream Partners

For EnLink Midstream Partners, 56.3% of the analysts rate it as a “hold,” 37.5% rate it as a “buy,” and 6.3% rate it as a “sell” as of October 24, 2017. Recently, Seaport Global Securities initiated coverage on EnLink Midstream Partners and assigned a “neutral” rating, which is equivalent to a “hold.” EnLink Midstream (ENLC), EnLink Midstream Partners’ general partner, has “hold” ratings from 73.3% of the analysts as of October 24. Currently, EnLink Midstream Partners is trading below the low range ($16) of analysts’ target prices. EnLink Midstream Partners’ average target price of $19.1 implies ~26.0% upside potential from the current price levels.

For more pre-earnings reviews on midstream companies, visit Market Realist’s Master Limited Partnerships page.

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