Is Enterprise Products Partners' Stock a Buy as the Company Ramps Up Growth?

Enterprise Products Partners (NYSE: EPD) continued to display its consistent nature when its reported its fourth-quarter earnings results on Tuesday. Meanwhile, the pipeline operator continues to ramp up its growth capital expenditures (capex) as it sees growing strong opportunities.

The midstream player has long been a favorite among income investors, and at its current share price has a forward yield of 6.6%.

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But is now a good time to buy the stock?

A consistent performer

When it comes to its earnings reports, Enterprise Products Partners typically doesn't have too many surprises up its sleeve, as it operates a steady, fee-based midstream business. That could be seen in Q4, when the company grew its total gross operating profit by 3% to $2.63 billion. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, increased by 4% to nearly $2.6 billion.

It generated distributable cash flow -- operating cash flow minus maintenance capex -- of $2.16 billion, a 5% increase. Its adjusted free cash flow was $336 million. With the company moving into growth mode, its adjusted free cash flow fell year over year.

Enterprise Products Partners had a distribution coverage ratio of 1.8 in the quarter based on its distributable cash flow. It ended 2024 with a leverage ratio of 3.1 (It defines that metric as net debt adjusted for equity credit in junior subordinated notes [hybrids] divided by adjusted EBITDA.) This is generally considered a low leverage ratio for the midstream industry, where levels between 3.5 and 4.5 are common.

It paid a quarterly distribution of $0.535 per unit, which was a 3.9% increase compared to a year earlier. Meanwhile, its distribution coverage ratio indicates that the company has room to continue to hike its payouts in the years ahead. Enterprise Products Partners has raised its distributions for 26 consecutive years. It also spent $63 million buying back 2.1 million units in the quarter.

Image source: Getty Images

Growth projects and guidance

Looking ahead, management plans to spend between $4 billion to $4.5 billion on growth capital expenditures this year (excluding acquisitions). That's up from $3.9 billion in 2024 and a big increase from the $1.6 billion it spent in 2022 after cutting back on growth capex during the first few years of the pandemic.

Enterprise Products Partners currently has $7.6 billion in major growth projects under construction. Most of these projects are scheduled to come online between the second half of 2025 and the end of 2026. About $6 billion worth of the projects are slated for this year. The company has typically gotten about a 13% annual return on its projects in recent years, so it could see about a $780 million boost to its EBITDA in 2026 as these projects ramp up.

According to comments on its latest earnings call, it currently has 20 data center projects in the queue in Texas with 2 billion cubic feet a day of natural gas demand and 15 potential power plant projects with demand for around 1.2 billion cubic feet a day. It believes that 15% of the data center projects and half of the power plant opportunities are showing good signs of progress.

However, the company is having trouble getting its long-anticipated Sea Port Oil Terminal (SPOT) project over the line, given the long delays the company experienced in getting the permits. With the environment changed, it does not know if it will reach a final investment decision this year.

Turning to guidance, Enterprise forecast mid-single-digit percentage cash flow growth for 2025. However, it's looking like 2026 is shaping up to be a bigger growth year given expected project completion time lines.

An attractive valuation

Enterprise Products Partners trades at a forward enterprise value -to-EBITDA (EV/EBITDA) multiple of 9.8 based on analysts' 2025 estimates. EV/EBITDA is the most common metric used to value midstream companies because they spend a lot of money on building long-lived assets such as pipelines. Enterprise value takes into consideration the debts companies accrue to build these projects, while EBITDA removes the non-cash depreciation costs that get spread across the life of these assets, since those costs have already been captured in the EV metric.

EPD EV to EBITDA data by YCharts.

Enterprise Products Partners' current EV/EBITDA multiple is below the range where it historically traded before the pandemic, and well below the multiple of 13.7 that the average midstream master limited partnership (MLP) traded at between 2011 and 2016. Enterprise, moreover, has typically traded at a premium in the midstream space due to its consistency and strong balance sheet.

With the company gearing up to ramp up its growth and 2026 looking likely to be a big year for EBITDA growth, I'd buy the stock at its current level. Investors can get a stock at a historically attractive price and enjoy a robust yield while they wait for its growth to ramp up.

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Geoffrey Seiler has positions in Enterprise Products Partners. The Motley Fool recommends Enterprise Products Partners. The Motley Fool has a disclosure policy.