EnLink Midstream: Second-Highest Correlation with Crude Oil



EnLink Midstream

EnLink Midstream (ENLC), the GP of EnLink Midstream Partners (ENLK), is ranked second among MLPs in term of its correlation with crude oil. EnLink Midstream’s one-year correlation with crude oil was 0.39 as of June 5. The high correlation with crude oil could be attributed to EnLink Midstream’s dependence on the limited partnership for distribution income and the company’s involvement in the natural gas processing and NGLs (natural gas liquids) marketing business.

EnLink Midstream’s correlation with crude oil fell to 0.24 during the past three-month period. The fall could be attributed to strong drilling activity despite the fluctuation in crude oil prices.

However, EnLink Midstream’s correlation with crude oil might increase in the long run due to the addition of natural gas processing capacity at EnLink Midstream Partners. The partnership is extremely bullish on expanding the processing capacity in the Delaware and STACK regions.

EnLink Midstream’s stock price has gained 1.1% since the beginning of this year, while crude oil has risen 8.4%. Additional gains in crude oil prices would likely drive EnLink Midstream’s stock performance in the rest of 2018.

Analysts’ recommendations

RBC Capital Markets upgraded EnLink Midstream to “outperform,” which is equivalent to “buy,” from “sector perform,” which is equivalent to “hold.” Of the analysts, 68.8% rate EnLink Midstream as a “hold,” 25% rate it as a “buy,” and 6.3% rate it as a “sell.” EnLink Midstream’s average target price of $17.5 implies ~2% upside potential from the current price levels.

Next, we’ll discuss the correlation between Viper Energy Partners (VNOM) and crude oil.

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