EPD - Embedded Expectations Analysis - 2021 07 23
Enterprise Products Partners L.P. (EPD:USA) currently trades below historical averages relative to UAFRS-based (Uniform) earnings, with a 14.5x Uniform P/E. At these levels,the market is pricing in bearish expectations for the firm, and management may have
concerns about GAAP earnings, taking advantage of energy trends, and meeting guidance.
Specifically, management may have concerns about unit purchases, the impact of non-cash asset impairment changes to their GAAP net income, and the impact of the Master Limited Partnership (MLP) tax law on earnings. Additionally, they may lack confidence in their ability to take advantage of energy trends, sustain their performance, and meet their capital investment growth and crude production guidance. Moreover, management may have concerns about their expansion on their Acadian Gas System, their commitment to ERCOT's Local Area Reliability Service (LARS) program, and their growth capital projects for 2022 and 2023. Furthermore, they may be exaggerating the value of their natural gas products for their clients. Finally, management may have concerns about the production increase of natural gas liquids (NGL) in the U.S., and the demand for fossil fuel and its derivatives.
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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