The midstream industry is in the midst of an intense ramp-up in organic growth and company consolidation. Mergers and acquisitions are an every-other-day occurrence as companies like Enterprise Products Partners (NYSE:EPD) and Kinder Morgan Energy Partners (UNKNOWN:KMP.DL) look to cash in on America's booming domestic energy production.
Growing fast enough to capitalize on oil and gas production is a big challenge for the companies in the midstream industry, but your analysis of their potential shouldn't stop there. I created a premium report on Enterprise to help investors look past the wheeling and dealing and toward some other areas that warrant attention.
Below is an excerpt from the report, laying out three areas investors need to watch in the coming years. We hope you enjoy.
1. The cash-to-debt situation at Enterprise isn't particularly pretty. However, it's important to keep in mind that this sort of debt is more or less inevitable with the master limited partnership structure. Though Enterprise is able to retain some cash, most of it gets paid out to unit holders. The partnership has retained 29% of cash flow since its IPO, and its annual cash flow can cover same-year maturities three times over. Enterprise is committed to organic growth going forward and is moving away from spending big money on acquisitions.
2. Master limited partnership investors care deeply about high yields and distributions. Enterprise's distributable cash flow has increased from 2007, leading to a nice long streak of unit distribution increases. In fact, cash flow in the first quarter of this year alone was equal to cash flow for all of 2009. Gross margins have also increased consistently, as pipeline and fractionation volumes are all higher than they were five years ago.
3. Enterprise expects propane use to return to normal levels in early 2013. However, that reality is contingent upon several factors: weather, increased use of propane as feedstock, and the on-time completion of a propane export facility. If that doesn't happen, and propane levels remain high, Enterprise may suffer a decline in revenue.
Looking for more guidance
That was just a sample of our new premium report on Enterprise. If you're weighing whether the company is a buy or sell, the report is an essential resource for investors seeking more information on the company. Not only that, but the report comes with updated quarterly guidance and dives into upcoming catalysts on the horizon. To get started, simply click here now.
Fool contributor Aimee Duffy has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Enterprise Products Partners. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.