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EPD-BAML-BUYPrice: 17.57 USD Well-placed, integrated value chain stronger vs peers Heading into 2Q20 earnings, we believe investor concerns about EPD have shifted from capital allocation strategy to fundamental outlook for its base businesses. Pausing distribution growth, bolstering liquidity and lowering capex have helped alleviate much of the capital allocation concerns after the March commodity price collapse. However, the difficulty in fully assessing the earnings impact from expected US production declines to EPD’s integrated business appears to be the key focus now. In our opinion, compared to peers such as ET and OKE, EPD benefits from (1) a robust integrated value chain extending from well-head to water, particularly for NGLs, and (2) strategic concentration of these assets in the premier Permian Basin and along US Gulf Coast, particularly in Mont Belvieu and Houston Ship Channel. The highly contracted exports component has favorably stretched EPD’s value chain, something that only a handful of peers have attempted successfully. We reiterate our Buy rating. Progress in JV opportunities could reduce capex further EPD had previously reduced its planned 2020-22 capex budget by ~$1bn by canceling or deferring spending on 13 projects. The reduction was well-received by investors given the challenging and uncertain commodity market outlook. EPD had indicated further potential capex reduction through JV negotiations on 6 projects. Out of 3 highly engaged negotiations, EPD appears to have advanced progress on at least one and could announce more details on its 2Q20 call, per our conversation with management. 2Q20 NGL margins likely better than previously expected EPD is scheduled to report 2Q20 earnings on Wednesday, 29 July, before market open. We estimate 2Q20 adj. EBITDA of $1,900mn, -4%/-9% QoQ/YoY, above the cons. est. of $1,867mn. We estimate 2Q20 DCF of $1,498mn, implying a LTM paid coverage ratio of 1.6x. We expect lower segment operating margins QoQ (approx. -5%) as a result of volume declines across all segments offset by better than anticipated margins in crude and NGL segments. Yesterday, EPD declared 2Q20 distribution of $0.445 per unit, 0%/1.7% QoQ/YoY, and in line with BofA estimate. |
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Msg # | Subject | Author | Recs | Date Posted |
121063 | Re: EPD-BAML-BUY | Tex7779 | 1 | 7/8/2020 3:00:23 PM |