Piñon Midstream Acquisition And International Contracts Will Strengthen Future Outlook

Key Takeaways

• Expansion in export capacity and new facilities are set to boost revenue growth and earnings through increased sales volumes and processing capacity.
  
• Strategic acquisitions and international agreements enhance operational base and international market presence, contributing to revenue growth and earnings stability.
  
• Bureaucratic delays, competition, and market oversupply present risks to revenue growth, profitability, and market share, with uncertainties in strategic projects impacting earnings stability.

Catalysts

Provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products.

• Enterprise Products Partners plans to expand its export capacity, aiming to increase monthly hydrocarbon exports to over 100 million barrels by 2027, which could drive future revenue growth through increased sales volumes.
  
• The completion and commissioning of new gas processing plants and NGL export facilities, such as the expansion at Morgan’s Point and the Neches River projects, are expected to come online in 2025, potentially leading to higher revenues and improved earnings through expanded capacity and output.
  
• The acquisition of Piñon Midstream and additional infrastructure investments in sour gas projects in the Delaware Basin position the company to enhance its operational base, likely contributing to revenue growth and potentially higher operating margins through increased processing volumes.
  
• Enterprise's significant focus on international hydrocarbon supply agreements, particularly the recent ethane contracts with Southeast Asian customers, positions the company for increased international sales, supporting future revenue expansion and earnings stability.
  
• The company is actively engaged in buybacks and has a leverage target that could allow for more shareholder returns, indicating potential EPS growth as the buybacks reduce the number of outstanding shares.

Enterprise Products Partners Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enterprise Products Partners's revenue will grow by 7.1% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 10.4% today to 10.1% in 3 years time.
• Analysts expect earnings to reach $6.9 billion (and earnings per share of $3.2) by about March 2028, up from $5.8 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, up from 12.5x today. This future PE is greater than the current PE for the US Oil and Gas industry at 12.7x.
• Analysts expect the number of shares outstanding to decline by 0.27% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.

Enterprise Products Partners Future Earnings Per Share Growth

Risks

• Bureaucratic delays in obtaining permits, such as the SPOT project, could impact future projects and delay potential revenue generation, affecting overall revenue growth.
  
• The expiration of the anchor customer contract due to project delays reflects risks in long-term commitments and potential revenue variability linked to crude oil exports.
  
• The current oversupply in the global petrochemical market and the slow recovery path could negatively impact margins in the petchem segment, affecting net margins and earnings.
  
• Rising competition in the LPG export market, illustrated by new export projects, could erode export economics and market share, potentially impacting revenue from exports.
  
• Uncertainty around sour gas handling and viability as a long-term growth strategy in the Permian Basin could affect capital returns and project profitability, leading to unpredictable earnings.

Valuation

• The analysts have a consensus price target of $36.778 for Enterprise Products Partners based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $40.0, and the most bearish reporting a price target of just $32.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $69.1 billion, earnings will come to $6.9 billion, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 8.2%.
• Given the current share price of $33.8, the analyst price target of $36.78 is 8.1% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.