Why Enterprise Products Partners Is in 4th Place among the Top 7 MLPs

EPD’s analyst recommendations

Enterprise Products Partners (EPD), the US largest MLP (master limited partnership) in terms of market capitalization, comes in fourth place among the top seven MLPs by analyst ratings—after Antero Midstream Partners (AM), Viper Energy Partners (VNOM), and Hoegh LNG Partners (HMLP).

EPD’s ratings have strengthened in recent months. Its “buy” percentage has increased from 93% during most of 4Q16 and 1Q17 to 96% in 3Q17. But the number of analysts covering the stock has fallen.

Why Enterprise Products Partners Is in 4th Place among the Top 7 MLPs

Morgan Stanley last upgraded EPD to “overweight,” which is equivalent to “buy,” in June 2017. Overall, the partnership has seen two rating updates in 2017, including one upgrade and one new coverage initiations with a “buy” rating.

Peers Williams Partners (WPZ) and Energy Transfer Partners (ETP) have “buy” ratings from 76.7% and 80.0% of analysts, respectively, while 77.8% of analysts rate ONEOK (OKE) as a “hold.”

EPD is now trading below the low range ($30) of the analysts’ target prices. EPD’s average target price of $32.4 implies a 24% upside potential from its current price level.

Valuation analysis

Enterprise Products Partners was trading at a forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of 13.1x as of September 28, 2017—lower than its historical five-year average of 14.6x but higher than the peer median multiple of 11.5x.

EPD’s current distribution yield of 6.4% is higher than the historical average of 5.1%. EPD generally trades at a premium to its peers, given its strong distribution growth, strong asset footprint, and low leverage. But the partnership’s low valuation compared with its historical average is likely due to its strong capital spending plans.

EPD is among the top five MLPs with the highest capital spending budgets for 2017. For more details, check out Market Realist’s series US Midstream Companies with the Largest Capital Spending Plans.

Continue to the next part of this series for a look at the analyst ratings for MPLX LP (MPLX).