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What Drove Enable Midstream Partners’ Earnings Growth in 4Q17?

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4Q17 and 2017 earnings

Enable Midstream Partners (ENBL), the midstream MLP involved in natural gas and crude oil gathering, natural gas processing, and natural gas transportation, posted a 9.2% YoY (year-over-year) rise in its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in its most recent quarter. Moreover, the partnership beat its 4Q17 EBITDA estimate by 3.7%.

ENBL’s 4Q17 EBITDA growth was driven by higher natural gas throughput volumes. Moreover, the partnership benefited from higher gross margins due to a YoY rise in crude oil and NGLs (natural gas liquids) prices. In 2017, the partnership grew its adjusted EBITDA 5.8%.

The YoY growth in the partnership’s EBITDA was partially offset by higher interest expenses, resulting in lower distributable cash flow growth of 3.3%. ENBL ended 2017 with distribution coverage of 1.2x.

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4Q17 distribution

The partnership declared a flat distribution of $0.32 per unit in its most recent quarter. Based on its recent distribution, ENBL is trading at a distribution yield of 8.5%. The partnership may not resume distribution growth in 2018 considering its strong expansion plans, high leverage, and low distributable cash flow growth.

2018 outlook

Enable Midstream Partners announced its 2018 outlook during its 3Q17 earnings release. The partnership expects its 2018 EBITDA and distributable cash flows to be $945 million–$1.0 billion and $650 million–$710 million, respectively. At the midpoint, these figures represent rises of 6.6% and 3.0%, respectively, compared to 2017’s EBITDA and distributable cash flows.

The partnership expects to use its excess cash flow for funding growth projects. It expects to spend $450 million–$600 million on expansion projects during 2018, of which $330 million–$460 million is expected to be spent on the expansion of gathering and processing infrastructure and $120 million–$140 million is expected to be spent on transportation and storage expansion.

Analysts’ recommendations

A total of 50.0% of analysts have rated Enable Midstream Partners as a “hold,” 33.0% have rated it as a “buy,” and the remaining 16.7% have rated it as a “sell” as of February 22, 2018. ENBL’s average target price of $17.4 implies a ~23.0% upside potential from its current price level.

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