Is EPD A Buy or Sell? (2024)

Is EPD A Buy or Sell? After a tumultuous and unpredictable 2020, many retail investors and traders have been in pursuit of one thing: recession-proof (and, now, pandemic-proof) investments.

In the wake of how many once-sturdy companies took a nosedive when the novel coronavirus first began tospread, they aren’t wrong to look for such a thing. One area that seems particularlysteadfast in the face of social and economic turmoil seems to be the utilities industry. This includes water, electricity, and gas, among other necessities.

Gas in particular has proven to be especially lucrative for retail investors and traders as of late. Enterprise Products Partners (abbreviated EPD on the New York Stock Exchange) is one of the largest companies in this realm, but does that make it a stock worth buying?

What Does Enterprise Products Partners Do?

EPD — formally Enterprise Products Partners L.P. — is a midstream natural gas and crude oil pipeline headquartered in America (Houston, Texas, to be specific).

Midstream means that EPD deals primarily with storage, transportation, and marketing of crude and/or refined oil.

Founded in 1968, EPD oversees 50,000+ miles of pipelines, over 190 million barrels of natural gas liquid (NGL), and more than 40 different plants for fracking and processing purposes.

Since acquiring and merging with competitor GulfTerra in 2004, Enterprise Products Partners has gone on to earn the #105 spot on the Fortune 500 list of the largest corporations in the United States by total revenue.

EPD Revenues and Earnings Forecasts

Since its acquisition of GulfTerra, EPD’s revenueseemed to be on a never-ending incline. Then, come summer of 2019, EPD’s revenues started to slip.

Its gross revenuefell for five quarters straight, and while the latest quarterly earnings from March 2021 shows a slight increase, EPD’s quarterly revenue is still nowhere near what itonce was. Comparing March of 2019 to March of 2021, it’s a difference of almost $1.5 billion.

As far as earnings forecasts go for EPD, analysts seem to think there’s nowhere to go but up for the company no matter who you ask.

Low estimates put the company’s stock rising from its current price of $24 up to $25 a year from now, while high estimates argue that EPD stock could rise all the way to $33 per share in twelve months’ time. Even if you split the difference and look at the average, the earnings forecast is still a positive one.

Spills Continue To Hurt EPD

The largest and most legitimate concern when it comes to buying stock in any oil or natural gas company is the risk of a spill. Unfortunately for EPD, this is really a matter of when, not if. The company has suffered from more than a handful of incidents just in the last decade alone, and given the nature ofthis line of work, future incidents are practically a guarantee.

Beyond this, there’s also the fact that oil and natural gas are actively being fought against in favor of more resourceful and environmentally friendly renewable forms of energy. Oil and natural gas consumption has long been considered a leading factor in accelerating climate change, and as such,many companies are looking to offset consumption with alternative sources of energy (such as solar panels or wind farms). The more this happens, the less oil and natural gas will be bought, and the less revenue EPD will bring in.

Looking at risks associated with EPD specifically, the company is a master limited partnership (or MLP), which means that EPD might not be the best stock to invest in long-term — say, for retirement funds or future savings — because these MLPs come with tax issues not found in your typical non-MLP corporations.

Not to mention, EPD’s position in the midstream market puts it at risk of shrinking instead of growing — after all, pipelines aren’t exactly the most popular things to the generalpublic, especially here in the U.S. This means that EPD needs to acquire more companies if it hopes to grow, because new construction might not be all that easy.

Is EPD Undervalued?

Taking into account its current price per share of $24, its lower-than-usual market cap of almost $53 billion, and its promising earnings forecasts, EPD is currently undervalued.

This is an enticing prospect for those retail investors and traders hoping to buy, and a sign for those hoping to sell that they need to hold on a little bit longer until the price per share rises a little higher. A discounted cash flow forecast analysis confirms the bullish thesis with a $28.24 per share price target on EPD currently.

Is EPD Stock A Buy? The Bottom Line

It hasn’t been mentioned yet, but EPD’s enormous yield of nearly 8% — about five times more than what you’d normally expect from your typical S&P 500 Index — is generating a lot of buzz among retail investors and traders.

As some may know, an alluring yield isn’t all it takes to make a stock worth buying (or selling, for that matter). You must look at the factors and make an educated decision from there. So, let’s review the factors at play behind EPD’s enticing yield:

There’s its risky revenue and its excellent forecasts, which forms an interesting financial contrast. There are the many red flags associated with oil and gas companies in general, but there’s also the promise that a utility stock like this one will likely survive future turmoil on the market.

Lastly, there’s its current undervaluation.

While the risks seem just as plentiful as the potential rewards, it seems EPD’s yield in combination with the stock’s positive aspects makes this stock well worth buying right now. For those looking to sell, hold onto your EPD stock and wait for that forecasted rise to occur.

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.