While the stock market has recently sold off, one stock that has had a good start to 2025 is Enterprise Products Partners (EPD +0.62%). The pipeline stock has seen its price increase by about 7% year to date, as of this writing.
Let's look at why the stock is a good buy while it is still trading at under $35.
NYSE: EPD
Key Data Points
A model of consistency
Investors interested in Enterprise are often first attracted to the company for its robust distribution and forward yield, which currently sits at 6.4%. However, Enterprise is more than just a high-yielding stock, it is a model of consistency.
The master limited partnership (MLP) has been able to increase its distribution for 26 straight years. It has been able to do this through various different energy markets and economic conditions. This speaks both to the company's strong business model and management's conservative approach.
Historically, over 80% of the company's business is fee-based and 90% of its contracts have inflation escalation provisions. Fee-based means that these businesses collect set fees, which aren't impacted by energy prices or commodity spreads. It also tries to add take-or-pay provisions to its contracts, which means it gets paid whether or not a customer uses its pipelines or services. About half its fee-based contracts have gotten these provisions in the past. This gives the company solid visibility into future cash flows and EBITDA (earnings before interest, taxes, depreciation, and amortization), the two metrics by which midstream companies are most commonly evaluated.
In addition to owning predictable fee-based, cash-flow-generating assets, Enterprise tends to be conservative with its balance sheet as well. Operating a midstream company is capital-intensive, as growth comes from constructing new pipelines and facilities. As such, midstream companies typically carry debt to fund these projects.
Enterprise currently carries leverage (net debt adjusted for equity credit in junior subordinated notes/EBITDA) of around 3.1 times. That's low for a midstream company, and as such its debt carries an investment grade.
Its distribution is also well funded, with the company having a coverage ratio based on its distributable cash flow (DCF) of 1.7 in 2024. DCF is operating cash flow minus maintenance capital expenditures.
All of this continues to point to Enterprise continuing its streak of increasing its distributions many years into the future.
Image source: Getty Images
Ramping up growth
While conservative in nature, Enterprise knows a good environment when it sees it. With a more fossil-fuel-friendly administration and increasing power demand coming from artificial intelligence (AI), the environment for midstream companies has been the best it has been in quite some time.
As such, the company is looking to take advantage of this situation and the attractive growth projects it is seeing by increasing its growth capital expenditures (capex). Enterprise reduced its growth capex to $1.8 billion in 2021 and $1.6 billion in 2022. After spending $3.9 billion in growth capex in 2024, it will ramp up its spending even more in 2025, taking it to between $4 billion and $4.5 billion.
It currently has $7.6 billion of growth projects under construction, with $6 billion of those projects set to come online this year. This should start to lead to strong growth in the second half of 2025 into 2026.
Many of these projects are targeted around the Permian Basin, which is the most prolific oil basin in the U.S. It is also home to some of the cheapest natural gas in the country, which positions the company well to take advantage of projects related to supplying power to AI data centers.
Enterprise said it currently has 20 data center projects in the queue and 15 potential power plant projects. It noted progress is still slow, with only about 15% of the data center projects and about half the power projects showing signs of progress. However, this is another area of potential opportunity for the company.
An attractive valuation
In addition to its consistent track record and the emerging opportunities in front of it from a more favorable midstream and energy environment, Enterprise's stock is also attractively valued from a historical perspective. It currently trades at an enterprise value (EV)-to-EBITDA multiple of 10, which is the most common metric used to value midstream companies.
EPD EV to EBITDA (Forward) data by YCharts
That compares to the 13.7 times EV/EBITDA multiple on average that midstream MLPs traded at between 2011 and 2016. Meanwhile, Enterprise has generally traded for a premium to the group given its strong balance sheet, conservative nature, and consistency.
At prices below $35, the stock is an attractive option for income-oriented investors also interested in some solid stock appreciation potential.
