Will This Company Pump Some Profits into Investor’s Portfolios?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. Fresh off breaking to the downside of the 200 day moving average for the second time in two months, I would like to pinpoint on one of the largest pipelines companies in the world, Enterprise Products Partners L.P. (NYSE: EPD).

 

Strengths:

  • Massive Dividend: Currently Enterprise pays out quarterly dividends of $0.65, which puts the dividend as yielding 5.23%
  • Solid Revenue Growth: In 2007, the company reported revenue of $16.95 billion; in 2011, Enterprise raked in $44.3  billion in revenue, representing 27.24% year over year annual growth
  • Reasonable Valuation:  Contrary to many of their competitors, Enterprise carries a reasonable valuation, with a price to earnings ratio of 17.46, a price to book ratio of 3.65, and a price to sales ratio of 1.01
  • Diversified Presence:  The company holds 21,530 miles of natural gas pipelines, 17,500 miles of NGL and petrochemical pipelines, 6,238 miles of crude oil pipelines and 5,434 miles of refined products pipelines, in addition to billions of cubic feet of storage capacity, stretching across the entire United States

Weakness:

  • Debt: Currently the company holds about $15.9 billion in long term debt, a major downside to the business
  • Lack of Institutional Confidence: Only 24% of shares outstanding are held by institutional investors, representing an apparent lack of confidence long-term and big-money investors have in the company
  • Projections of Slowing Growth: Average analyst estimates project revenue dipping slightly for the 2012 year, due to a continued sluggish United States economic landscape
  • Minuscule Margins: Enterprise currently carries a net profit margin of only 4.60%, which is rather compressed and leaves little room for error

Opportunities:

  • Expansion: Currently, the company has $7.7 billion invested in expansion plans, which should fuel its high-paced growth into the future, this includes 750 miles of pipeline expansion into the Eagle Ford Shale and 20 other expansion projects
  • Dividend Growth: Since 1999, Enterprise has consistently raised its dividend payouts from just under $1.00 in 1999 to $2.60 presently, representing an annual year over year growth rate of nearly 7.5%, and further growth is highly anticipated
  • Acquisitions: On September 7, 2011, Enterprise announced a merger with Duncan Energy Partners L.P., and further acquisitions and mergers should fuel Enterprise’s accelerated growth
  • Growth In the US Energy Industry: A recent International Energy Agency report predicts that the United States will pass Saudi Arabia as the world’s largest oil producer by 2017, and with growth in the US energy industry, will come increased opportunities for the company to expand and meet rising demand

Threats:

  • Rising Input Prices: The majority of EPD’s business is related to transporting products, and transporting costs corresponds to gas prices, and a rise in gas and other input costs could squeeze the company’s margins
  • Tightening Government Regulation: The Obama Administration recently rejected the Keystone pipeline proposal, and this same administration is in control for 4 more years, which could hurt Enterprise’s expansion prospects
  • Competition: The pipeline industry is not immensely crowded  compared to other industries because of the vast investment required, however there is competition to ship the customers products for the lowest price

Competitors:

Major publically traded competitors of Enterprise include Kinder Morgan Energy Partners L.P (NYSE: KMP) and Williams Partners L.P. (NYSE: WPZ). Kinder Morgan owns an interest in about 29,000 miles of pipelines, and is valued at around $30 billion on the market. The company pays out a dividend yielding 6.35%, however carries a price to earnings multiple north of 50. Williams is valued at around $17 billion on the market, and carries a dividend yielding 6.84%.

The Foolish Bottom Line:

Enterprise Products Partners has recently fallen off a mini-precipice along with the rest of the industry; however the company’s core business remains strong. The company has solid revenue growth and is heavily invested in expanding into the future. If the recent IEA report is correct, Enterprise will heavily benefit from the looming American energy boom thanks to new technologies such as fracking. The company’s dividend is massive and is consistently raised by the company. The foolish bottom line is that Enterprise is a tremendous long-term investment and should hand investors incredible returns into the future.      


makinmoney2424 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 L.P.. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure