Enterprise Products Partners (EPD 0.65%) continues to see some headwinds, as earlier this year, some attractive long-term contracts rolled off in its LPG (liquified petroleum gas) business, and the high spreads it was previously enjoying in its propylene and octane enhancement businesses have normalized. However, the company's overall business remains fairly steady, and it has a number of large growth projects set to come online by year-end.
The master limited partnership (MLP) currently has a forward yield of 7.1% and just increased its stock buyback authorization from $2 billion to $5 billion. It said that increasing its distribution will continue to be its No. 1 priority, but that by upping its buyback authorization, it will have more capital allocation flexibility.
Let's take a closer look at the midstream energy company's Q3 results and prospects to see if investors should be buying the stock ahead of what should be stronger growth in 2026.
NYSE: EPD
Key Data Points
Better growth ahead
While Enterprise is dealing with some minor headwinds, it still has a very steady, predictable business model. More than 82% of its gross operating profits thus far this year have come from fee-based activities. That's more in line with its historical levels after seeing a few years of strong commodity-price and differential-based contributions that pushed it lower.
In Q3, Enterprise's total gross operating profit fell by 3% to $2.39 billion, while its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) edged lower by 1.5% to $2.41 billion. Distributable cash flow (DCF) fell by 7% to $1.83 billion, while adjusted free cash flow came in at just $96 million.
Despite the weak quarter, Enterprise's distribution remained well covered, and its balance sheet is solid. It had a 1.5x coverage ratio, based on its DCF, for the quarter, while it ended Q3 with leverage (net debt adjusted for equity credit in junior subordinated notes divided by adjusted EBITDA) of 3.3x. It paid a $0.545 per unit quarterly distribution, which was up 3.8% year over year. It also bought back $80 million in stock in the quarter.
Looking ahead, Enterprise has a number of projects coming online soon. It said that, after a three-month delay, its huge Frac 14 natural gas liquids (NGL) fractionator is now up and running, and that two PDH (propane dehydrogenation) plants are returning to normal levels. Meanwhile, its Bahia Pipeline and Seminole Pipeline conversion will soon come online at the same time. Bahia is a new NGL project, while the Seminole Pipeline was temporarily converted to an NGL pipeline and will be converted back to a crude pipeline.
The company currently has $5.1 billion in projects under construction, and has ramped up its capital expenditure (capex) spending to $4.5 billion this year. It will return to a capex of between $2.2 billion and $2.5 billion in 2026, giving it a lot more flexibility to reduce debt, buy back stock, and increase its distribution.
Image source: Getty Images.
Is it time to buy Enterprise stock?
Despite the recent headwinds, Enterprise remains one of the best-run midstream companies out there. It's been able to increase its distribution for 26 consecutive years, and with a period of big capex spending set to finish up, it should see both strong growth and increased capital allocation flexibility next year.
On the valuation front, the stock trades at a forward enterprise value-to-EBITDA (EV/EBITDA) multiple of 9.5x based on analysts' 2026 estimates of $10.53 billion in EBITDA. That is well below the company's historical valuation multiple, and an attractive entry point.
Given Enterprise's attractive valuation and well-covered distribution, I'd be a buyer of the stock heading into what should be a much stronger year operationally for the company in 2026.
