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Why Units of EnLink Midstream Are Skyrocketing Today

By Matthew DiLallo – Aug 5, 2020 at 11:37AM

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The midstream company delivered solid results despite the turmoil in the energy market.

What happened

Units of EnLink Midstream (ENLC -1.33%) soared more than 27% by 10:30 a.m. EDT on Tuesday. Fueling the energy stock was its better-than-expected second-quarter results.  

So what

EnLink Midstream generated $255.1 million of adjusted EBITDA during the second quarter, which was largely unchanged from the first quarter. That was an impressive result considering all the turmoil in the energy market during the period. The company was able to deliver that steady performance thanks to its operations in the Permian Basin, where profits soared 35% thanks to volume growth, cost reductions, and opportunities to capture margin at its crude oil storage assets. That helped offset weakness elsewhere. 

A person in a suit with an outstreched hand that has a bright light and upward chart coming out of it.

Image source: Getty Images.

The company's stronger-than-expected performance during that turbulent period has it on track to achieve the high end of its $950 million to $1.025 billion adjusted EBITDA guidance range. EnLink is also on pace to meet or exceed the high end of its $260 million to $280 million guidance range for excess free cash flow after paying the dividend. The company generated $72 million in excess cash during the second quarter, which helped drive leverage from 4.6 times debt to EBITDA at the end of the first quarter to 4.3 times. Because of these factors, the company's reset dividend -- which currently yields 11.7% after today's rally -- looks sustainable. 

Now what

EnLink reacted quickly when market conditions deteriorated earlier this year by slashing its dividend in half and cutting capital spending to bolster its balance sheet. Those moves now have it on track to generate substantial excess cash, which will further reduce leverage and put its reset dividend on a firmer foundation. Because of that, it's starting to look like a compelling option for income investors.  

Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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