EPD - Embedded Expectations Analysis - 2019 04 24
Enterprise Product Partners, L.P. (EPD:USA) currently trades below historical averages relative to UAFRS-based (Uniform) Earnings, with an 17.9x Uniform P/E. At these levels, the market has bearish expectations for the firm, and management is concerned about plant openings, returns from new projects, and financial flexibility.Specifically, management may be concerned about their recent plant openings, their ability to attain Washington Maritime Administration approval for an offshore plant, and the sustainability of their distribution reinvestment and share buyback plans. Moreover, they may have concerns about returns on new projects, the ramp-up of long-term Midland-to-Sealy contracts, and their outlook for growth in the fractionation market. In addition, they may be concerned about their ability to finance LPG export capacity expansion, their transition away from an MLP model, and their financial flexibility. Finally, they may lack confidence in their ability to sustain payout ratios, maintain distributable cash flows, and develop and grow their petrochemical midstream services.
Enterprise Products Partners is a provider of midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals and refined products. The company's midstream energy operations include: natural gas gathering, treating, processing, transportation and storage; NGL transportation, fractionation, storage, and export and import terminals; crude oil gathering, transportation, storage, and export and import terminals; petrochemical and refined products transportation, storage, export and import terminals, and related services; and a marine transportation business that operates primarily on the U.S. inland and Intracoastal Waterway systems.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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