Is It Time to Pile Into Enterprise Products Partners Stock, As It Looks to Supercharge Growth?

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One of the most consistent companies in the midstream space, Enterprise Products Partners (NYSE: EPD), is looking to ramp up its spending on growth projects as it begins to see a strong set of project opportunities in front it. At the same time, the pipeline operator continues to put up good results, with a solid showing in its third quarter.

The stock pays a highly attractive distribution with a 7.2% forward yield. Let’s dig into the company’s Q3 results to see if now is a good time to buy the stock, as it looks to supercharge growth.

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With a steady, predominantly fee-based business model, Enterprise doesn’t tend to give investors too many surprises, which is a good thing. This stayed true last quarter, as the company delivered solid growth.

In its third quarter, Enterprise’s total gross operating profit increased 5% to $2.45 billion. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) also rose 5% to nearly $2.44 billion.

It produced distributable cash flow (DCF) of $1.96 billion, a 5% increase. Meanwhile, its adjusted free cash flow was $943 million. DCF is similar to free cash flow, except that operating cash flow is only reduced by maintenance capital expenditures (capex) and not growth capex. With the company directing more money toward growth projects, its adjusted free cash flow was down year over year.

Based on its DCF, Enterprise’s distribution coverage ratio was 1.7x. It ended the quarter with leverage of 3x, which it defines as net debt adjusted for equity credit in junior subordinated notes (hybrids) divided by adjusted EBITDA.

What all these fancy acronyms show at the end of the day is that Enterprise is generating a lot of cash flow that it is directing toward its distribution and growth projects, while keeping its debt levels at appropriate and manageable levels. Free cash flow will likely dip as it allocates more of this cash flow toward growth, and the company has started to spend slightly more in distributions and capex than it is generating in operating cash flow.

While that is something to monitor, Enterprise’s balance sheet is one of the best in the midstream space, and it has increased its distribution for 26 straight years. There is nothing in Enterprise’s history that indicates it will spend recklessly, but it will take advantage of attractive projects when it sees them, and it has fortified its balance sheet to do just that.

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