Enterprise Products Partners Undervalued Despite Near-Term Challenges, Offers Asymmetric Risk/Reward Profile
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Enterprise Products Partners (EPD) is currently undervalued due to market overreaction to challenges like revenue decline. However, EPD has robust profitability and stable returns on capital.
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EPD has a diversified asset base across the midstream value chain and many growth opportunities like expanding production facilities and exporting more LNG.
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Conservative estimates project 4.5% EPS growth over next 3-5 years for EPD, much higher than consensus forecasts. The stock offers a highly skewed, positive return profile.
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Main risks are volatility in oil/gas prices, rising debt levels, and high CAPEX spending on new projects which could face delays or cost overruns.
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However, these are temporary issues and the market is ignoring EPD's positives like stable profitability. The cheap valuation plus profitability creates an asymmetric risk/reward profile.