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Renaissance Technologies and Ken Fisher’s Bid on Enterprise Products Partners
Posted by: Vanina Egea (IP Logged)
Date: March 21, 2014 10:08PM
Few times banking and financial institutions coincide about stock rating. More often than not, their opinion is divided leaving the investor feeling uncertain about the stock’s future performance. Most importantly, the potential investor may be turned-off and miss a good opportunity. Hence, an analysis of Enterprise Products Partners (EPD) is all the more interesting at this time.
Deutsche Bank raised the stock’s target price by $2 to $80, while Credit Suisse upgraded its rating to “Outperform” and took target price from $71 to $78. At the same time, UBS took target price to $74, and Barclays conservatively raised target price to $73. Besides the differences, all institutions have confirmed the company’s good momentum. What is there left to be seen is, whether performance will continue eliciting admiration and attracting new investors.
Enterprise Products Partners published performance results for the year ended in December 2013. “We benefited from record volumes in our fee-based businesses attributable to production growth and from strong domestic and international demand for NGLs,” Michael A. Creel, chief executive officer of Enterprise’s general partner said. Incremental increases in cash flow by 6.5% year-over-year allowed the firm to raise its dividend payout for the 38th consecutive quarter.
Overall performance improved throughout 2013 for Enterprise Products Partners. However, not all segments performed equally well. Most notably, the Onshore Natural Gas Pipeline & Services segment saw a decline in gross operating margin. The decline is closely related with lower aggregate volumes at the Haynesville, Jonah, Piceance Basin and San Juan gathering systems. Nonetheless, the improvements registered on the other three segments widely offset the losses.
Shareholders are happy to see management’s preoccupation for the recent verdict by a Dallas jury which ruled against the company in a lawsuit filed by Energy Transfer Partners over a proposed pipeline project that was cancelled in August 2011 due to a lack of customer support. According to the ruling, Enterprise Products Partners is due to pay $319 million in actual damages to Energy Transfer.
Solid Business Structure and Continued Capital Investment
Enterprise Products Partners invested $1.3 billion in the fourth quarter of 2013 and will bring online $7.8 billion worth of major assets through 2016. So far, the company announced that eighth NGL fractionators at Mont Belvieu, the Texas Express NGL pipeline, the first two processing trains at its Yoakum natural gas plant, the extension of the Acadian Haynesville and the Seaway crude oil pipeline reversal are expected to drive future growth.
Solid market positioning in the U.S. is expected to give Enterprise Products Partners a competitive advantage from a shift toward liquids production. The positive impact over performance will be compounded through an increasing contribution of crude oil pipelines in the business structure. In other words, a string of organic growth projects, potential acquisitions, strong balance sheet and solid liquidity position characterize this strong market competitor.
Trading at 24.5 times its trailing earnings, Enterprise Products Partners’ stock carries a 37% discount to the industry average. To interpret Renaissance Technologies’ purchase is trivial due to its decision process. Repetitive purchases and sales difficult most rational thinking, but the repetitive position increments are evidence of the company’s good performance. Ken Fisher (Trades, Portfolio) has followed the same behavior but since most recent times. In the end, their purchases indicate that profits can be made, especially through quarterly dividend payments.
Due to the solid market positioning achieved by Enterprise Products Partners, and generous discount, this is a proper time for taking a position in the firm. However, the investor should be aware about the industries’ cyclicality, and the possibility of not seeing much benefit on a long-term investment.
Disclosure: Vanina Egea holds no position in any of the mentioned stocks.
Stocks Discussed: EPD,