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Zacks Industry Outlook Highlights Enterprise Products, Energy Transfer and Plains All American Pipeline
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For Immediate Release
Chicago, IL – September 11, 2024 – Today, Zacks Equity Research discusses Enterprise Products Partners LP (EPD - Free Report) , Energy Transfer LP (ET - Free Report) and Plains All American Pipeline LP (PAA - Free Report) .
Oil prices remain favorable for exploration and production activities, which is expected to drive increased upstream operations. This, in turn, could boost demand for pipeline and storage assets, improving the outlook for the Zacks Oil and Gas - Pipeline MLP industry.
These partnerships benefit from stable, fee-based revenues derived from long-term contracts with shippers. With a strong pipeline of growth projects, midstream companies are positioned to generate additional cash flows, highlighting a stable and low-risk business model. Notable companies in this industry include Enterprise Products Partners LP, Energy Transfer LP and Plains All American Pipeline LP.
About the Industry
The Zacks Oil and Gas - Pipeline MLP industry comprises master limited partnerships (or MLPs) that primarily transport oil, natural gas, refined petroleum products and natural gas liquids (NGL) to consumers in North America. Apart from transporting the commodities, the partnerships have huge capacities to store oil, natural gas and petrochemical products.
The partnerships are thus providing midstream services to producers and consumers of the commodities. The partnerships generate stable fee-based revenues from all these transportation and storage assets. The services provided by the MLPs entail the gathering and processing of commodities. The integrated midstream energy players also generate cashflows from ownership interests in fractionators and condensate distillation facilities.
What's Shaping the Future of the Oil & Gas Pipeline MLP Industry?
Pipeline Demand to Improve: West Texas Intermediate (WTI) crude is currently trading above $65 per barrel, which remains favorable since the breakeven price for existing wells is considerably lower. This price level is likely to encourage explorers and producers to increase upstream activities, potentially boosting demand for crude transportation pipelines operated by midstream companies.
Stable Fee-Based Revenues: Most pipeline and storage assets are being booked by shippers for the long term, making midstream businesses less vulnerable to volatility in commodity prices. Backed by long-term contracts, the MLPs belonging to the industry also have a minimal oil and gas volume risk. Owing to these factors, pipeline players will continue generating stable fee-based revenues.
Impressive Project Backlog: Many partnerships in the industry have a considerable backlog of growth projects worth billions of dollars. The projects will come online in a few years, securing additional cashflows for the pipeline players.
Attractive Distribution Yield: Oil and gas pipeline stocks pay attractive distribution yields. Compared to the overall energy sector, partnerships belonging to the industry have rewarded unitholders with significantly higher distribution yields over the past few years, providing reassurance that the midstream business is relatively more stable than upstream and downstream operations.
Zacks Industry Rank Indicates Bright Outlook
The Zacks Oil and Gas - Pipeline MLP industry is a six-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #62, which places it in the top 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries forms a positive earnings outlook for the constituent stocks in aggregate. Before we present a few stocks that you may want to consider, let’s look at the industry’s recent stock market performance and its valuation picture.
Industry Outperforms Sector & S&P 500
Industry Outperforms Sector & S&P 500
The Zacks Oil and Gas - Pipeline MLP industry has outperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 Composite over the past year. The industry has rallied 30.1% in the past year against a decline of 0.4% of the broader sector and an improvement of 21.9% of the S&P 500.
Industry's Current Valuation
Since midstream-focused oil and gas partnerships use fixed-rate debt for the majority of their borrowings, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive stocks, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 11.65X, lower than the S&P 500’s 18.13X. It is, however, significantly above the sector’s trailing 12-month EV/EBITDA of 3.03X.
Over the past five years, the industry has traded as high as 11.76X and as low as 6.69X, with a median of 9.83X.
3 Oil & Gas Pipeline MLPs to Keep on Your Radar
Enterprise Products, a top-tier North American midstream service provider, boasts a vast and diversified asset portfolio. This includes more than 50,000 miles of pipelines and a storage capacity of 300 million barrels. These assets are utilized by shippers on long-term contracts to transport and store natural gas liquids, crude oil, refined products and petrochemicals. The partnership, carrying a Zacks Rank #3 (Hold), also has 14 billion cubic feet of natural gas storage capacity, securing stable fee-based revenues.
Additionally, EPD is set to generate additional fee-based earnings with $6.7 billion worth of major capital projects either currently in service or under construction. These project backlogs will not only secure stable cashflows but will also generate handsome unitholder returns.
Energy Transfer has a stable business model with its huge pipeline network of natural gas, oil and refined petroleum products across 125,000 miles. The partnership has midstream assets in all the key basins in the United States, generating stable fee-based revenues.
Energy Transfer, carrying a Zacks Rank #3, has offered a higher dividend yield than the composite stocks belonging to the industry over the past year. For this year, the partnership is likely to see earnings growth of 28.4%.
Plains All American Pipeline also enjoys stable fee-based revenues banking on its oil and natural gas pipeline network and storage assets. In the past year, the Zacks #3 Ranked stock has gained 26.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Enterprise Products, Energy Transfer and Plains All American Pipeline
For Immediate Release
Chicago, IL – September 11, 2024 – Today, Zacks Equity Research discusses Enterprise Products Partners LP (EPD - Free Report) , Energy Transfer LP (ET - Free Report) and Plains All American Pipeline LP (PAA - Free Report) .
Industry: Oil & Gas - Pipeline
Link: https://www.zacks.com/commentary/2333884/3-oil-gas-pipeline-stocks-to-watch-from-a-prospering-industry
Oil prices remain favorable for exploration and production activities, which is expected to drive increased upstream operations. This, in turn, could boost demand for pipeline and storage assets, improving the outlook for the Zacks Oil and Gas - Pipeline MLP industry.
These partnerships benefit from stable, fee-based revenues derived from long-term contracts with shippers. With a strong pipeline of growth projects, midstream companies are positioned to generate additional cash flows, highlighting a stable and low-risk business model. Notable companies in this industry include Enterprise Products Partners LP, Energy Transfer LP and Plains All American Pipeline LP.
About the Industry
The Zacks Oil and Gas - Pipeline MLP industry comprises master limited partnerships (or MLPs) that primarily transport oil, natural gas, refined petroleum products and natural gas liquids (NGL) to consumers in North America. Apart from transporting the commodities, the partnerships have huge capacities to store oil, natural gas and petrochemical products.
The partnerships are thus providing midstream services to producers and consumers of the commodities. The partnerships generate stable fee-based revenues from all these transportation and storage assets. The services provided by the MLPs entail the gathering and processing of commodities. The integrated midstream energy players also generate cashflows from ownership interests in fractionators and condensate distillation facilities.
What's Shaping the Future of the Oil & Gas Pipeline MLP Industry?
Pipeline Demand to Improve: West Texas Intermediate (WTI) crude is currently trading above $65 per barrel, which remains favorable since the breakeven price for existing wells is considerably lower. This price level is likely to encourage explorers and producers to increase upstream activities, potentially boosting demand for crude transportation pipelines operated by midstream companies.
Stable Fee-Based Revenues: Most pipeline and storage assets are being booked by shippers for the long term, making midstream businesses less vulnerable to volatility in commodity prices. Backed by long-term contracts, the MLPs belonging to the industry also have a minimal oil and gas volume risk. Owing to these factors, pipeline players will continue generating stable fee-based revenues.
Impressive Project Backlog: Many partnerships in the industry have a considerable backlog of growth projects worth billions of dollars. The projects will come online in a few years, securing additional cashflows for the pipeline players.
Attractive Distribution Yield: Oil and gas pipeline stocks pay attractive distribution yields. Compared to the overall energy sector, partnerships belonging to the industry have rewarded unitholders with significantly higher distribution yields over the past few years, providing reassurance that the midstream business is relatively more stable than upstream and downstream operations.
Zacks Industry Rank Indicates Bright Outlook
The Zacks Oil and Gas - Pipeline MLP industry is a six-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #62, which places it in the top 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries forms a positive earnings outlook for the constituent stocks in aggregate. Before we present a few stocks that you may want to consider, let’s look at the industry’s recent stock market performance and its valuation picture.
Industry Outperforms Sector & S&P 500
Industry Outperforms Sector & S&P 500
The Zacks Oil and Gas - Pipeline MLP industry has outperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 Composite over the past year. The industry has rallied 30.1% in the past year against a decline of 0.4% of the broader sector and an improvement of 21.9% of the S&P 500.
Industry's Current Valuation
Since midstream-focused oil and gas partnerships use fixed-rate debt for the majority of their borrowings, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive stocks, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 11.65X, lower than the S&P 500’s 18.13X. It is, however, significantly above the sector’s trailing 12-month EV/EBITDA of 3.03X.
Over the past five years, the industry has traded as high as 11.76X and as low as 6.69X, with a median of 9.83X.
3 Oil & Gas Pipeline MLPs to Keep on Your Radar
Enterprise Products, a top-tier North American midstream service provider, boasts a vast and diversified asset portfolio. This includes more than 50,000 miles of pipelines and a storage capacity of 300 million barrels. These assets are utilized by shippers on long-term contracts to transport and store natural gas liquids, crude oil, refined products and petrochemicals. The partnership, carrying a Zacks Rank #3 (Hold), also has 14 billion cubic feet of natural gas storage capacity, securing stable fee-based revenues.
Additionally, EPD is set to generate additional fee-based earnings with $6.7 billion worth of major capital projects either currently in service or under construction. These project backlogs will not only secure stable cashflows but will also generate handsome unitholder returns.
Energy Transfer has a stable business model with its huge pipeline network of natural gas, oil and refined petroleum products across 125,000 miles. The partnership has midstream assets in all the key basins in the United States, generating stable fee-based revenues.
Energy Transfer, carrying a Zacks Rank #3, has offered a higher dividend yield than the composite stocks belonging to the industry over the past year. For this year, the partnership is likely to see earnings growth of 28.4%.
Plains All American Pipeline also enjoys stable fee-based revenues banking on its oil and natural gas pipeline network and storage assets. In the past year, the Zacks #3 Ranked stock has gained 26.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +7.0 average gain per year. Amazingly, they soared with average gains of +44.9%, +48.4% and +55.2% per year.
Today you can access their live picks without cost or obligation.
See Stocks Free >>
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.