Enterprise Products Dips 2.1% in a Month: Bet on the Stock or Stay Away?

Enterprise Products Partners LP EPD stock lost 2.1% over a month compared with the industry’s dip of 3.6% in the same period. Enbridge Inc. ENB and Kinder Morgan Inc. KMI lost 1.7% and 0.2%, respectively, but these two midstream energy majors have outperformed EPD.

Should investors jump on EPD, which generates stable fee-based revenues, despite the unit price decline? Hence, analyzing the partnership’s business fundamentals is crucial before making investment decisions.

EPD’s Significant Permian Dependence Poses a Concern

To feed its pipelines and processing plants, Enterprise Products has a significant reliance on the Permian, the most prolific oil and gas shale play in the United States. In its second-quarter 2025 earnings transcript, EPD revealed that most of the core oil-producing regions in the Permian have already been used up, and the exploration and production companies are now increasingly focusing on those areas that are rich in natural gas.

Thus, the composition of commodities that EPD will be transporting in the coming days will probably be weighted more toward natural gas. This will likely create pressure on EPD’s profit margin as natural gas and NGL are less profitable than oil at the wellhead, considering energy density and transport costs.

Enterprise Products’ Huge Financial Obligations

The midstream energy giant has huge debt obligations. The partnership revealed in its last earnings call that it has a debt principal obligation of $33.1 billion as of the June quarter of this year, leading to a debt-to-capitalization of 52.3%. This compares with 50.5% for Kinder Morgan and 59.7% for Enbridge.

On top of that, Enterprise Products is planning to invest annually in the range of $4 billion to $4.5 billion in growth projects.

Although the majority of the partnership’s debt obligations are at a fixed interest rate, considering the massive debt load and capital spending, the midstream giant is carrying significant financial obligations. This could become risky if any of the growth projects fail to generate sufficient cash flows to meet EPD’s expectations.

Should Investors Stay Away from the Stock?

Considering the valuation story, investors are not willing to pay a premium price for EPD. This is reflected by the fact that it trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 10.10X, which is below the broader industry average of 10.44X. KMI and ENB trade at a trailing 12-month EV/EBITDA of 14.03X and 15.44X, respectively.

Thus, considering heavy Permian dependence and massive financial obligations, it would be ideal to stay away from the stock, although EPD generates stable fee-based revenues like KMI and ENB. Enterprise Products currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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