Enterprise Upped to Outperform

We are upgrading our recommendation on Enterprise Products Partners L.P. (EPD - Analyst Report) to Outperform from Neutral, following a sterling third quarter, a pipeline of development projects and lucrative collaborations.

The results of the recently concluded quarter were backed by greater volumes of natural gas, natural gas liquids (NGLs) and crude oil along with a strong demand for NGLs in the U.S. petrochemical industry and global markets.

The partnership’s earnings per limited unit of 55 cents surpassed the Zacks Consensus Estimate of 50 cents and shot up 206% from 18 cents earned a year ago. Revenues in the quarter increased 40% year over year to $11.3 billion.

Importantly, Enterprise increased its third quarter 2011 cash distribution rate by 5.2% year over year to 61.25 cents per common unit, or $2.45 per unit on an annualized basis, marking the partnership’s twenty-ninth consecutive quarterly hike. With its diverse set of NGL, natural gas, crude oil and refined products midstream infrastructure assets, the partnership possesses fundamental strengths that will continue to support distribution growth.

We remain impressed with Enterprise’s $1.5 billion Haynesville Extension project in the Acadian Gas system that came online in November 2011 and was $100 million under the original budget. The venture is expected to generate annual incremental gross operating margin of $150–$200 million supported by long-term, firm contracts.

We also expect Enterprise to benefit from approximately $4.5 billion worth of expansion projects that are in process and scheduled to start operating between 2012 and 2014. Several projects in the Eagle Ford Shale are set to provide oil and gas infrastructure to the rapidly growing production region and be value accretive to future cash flows.

Additionally, Enterprise Products Partners’ alliance with Enbridge Energy Partners L.P. (EEP - Analyst Report) and Anadarko Petroleum Corporation (APC - Analyst Report), to build a new NGL pipeline called the Texas Express Pipeline, will strengthen its footprint in Texas and spread its reach to new markets.

Hence, we view Enterprise as favorably positioned in the industry and an attractive investment. The partnership currently retains a Zacks #2 Rank (which translates into short-term Buy rating).

Read the full analyst report on EPD

Read the full analyst report on EEP

Read the full analyst report on APC