Cheap Valuation & Tariff Immunity: Is it Time to Bet on EPD Stock?

Enterprise Products Partners LP EPD appears undervalued, currently trading at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 10.28x. This represents a discount compared with the broader industry average of 11.49x and midstream giants like Kinder Morgan Inc. KMI and Enbridge Inc. ENB, which trade at 14.18x and 15.14x, respectively.

Now, the million-dollar question is: Should investors bet on the undervalued stock when the North American midstream service provider is largely immune to the market uncertainty stemming from the ongoing tariff concerns? Before diving into the investment case, let’s delve deeper into the midstream energy giant’s fundamentals and the broader business landscape.

Here’s Why EPD is Largely Immune to Tariff Concerns

EPD is a major U.S. exporter of LPG (liquefied petroleum gas), which comprises propane and butane. The midstream energy giant has already secured 85% to 90% of its LPG export capacity while entering into take-or-pay long-term agreements with international counterparties. Due to the nature of the contact, Enterprise Products has predictable revenue sources and is hence not vulnerable to short-term fluctuations in commodity prices.

With contracts primarily held with international trading companies, rather than directly with Chinese firms, EPD is largely insulated from geopolitical risks such as tariffs or sanctions. This is because traders can reroute barrels, typically based on global demand.

EPD’s $7.6B Backlog & Over 2 Decades of Distribution Growth

Enterprise Products, a top-tier North American midstream service provider, boasts a vast and diversified asset portfolio, which includes more than 50,000 miles of pipelines and a storage capacity of 300 million barrels. Shippers utilize these assets in long-term contracts to transport and store natural gas liquids, crude oil, refined products and petrochemicals. The partnership also has 14 billion cubic feet of natural gas storage capacity, securing stable fee-based revenues.

EPD is set to generate additional fee-based earnings from $7.6 billion worth of major capital projects either currently in service or under construction. These project backlogs will not only secure stable cash flows but also generate handsome returns for unitholders.

Supported by its stable and resilient business model, Enterprise Products has achieved more than two decades of distribution hikes across various business cycles. The current distribution yield of the partnership is 6.7%, which marginally exceeds the 6.4% yield of the composite stocks in the industry.

Distribution Yield

Like EPD, the business models of Kinder Morgan and Enbridge are backed by stable fee-based revenues.

Kinder Morgan’s position as a leading midstream service provider is reinforced by a network of pipeline and storage assets that operate under long-term take-or-pay contracts. These contracts ensure that shippers pay for the capacity reserved, whether they utilize it or not, which provides a steady stream of revenues. This structure allows KMI to generate stable earnings, primarily insulated from fluctuations in the volume of natural gas transported, offering significant stability to its bottom line.

Similarly, Enbridge benefits from the long-term, fee-based nature of its midstream operations. Its pipelines transport 20% of the total natural gas consumed in the United States. The company generates stable, fee-based revenues from these midstream assets, as they are booked by shippers on a long-term basis, minimizing commodity price volatility and volume risks.

Adding to its stability, ENB will generate incremental cash flows from its C$28 billion backlog of secured capital projects, which include liquids pipelines, gas transmission, gas distribution and storage, and renewables. The maximum in-service date is 2029.

Enterprise Products’ Permian Outlook Remains Strong

Last year, EPD connected more than 1,000 wells in the Permian – the most prolific basin in the United States – to its system and plans to add almost a similar number of wells this year. Thus, more volumes of oil, natural gas and natural gas liquids (NGL) will be transported through its pipelines and hence will feed its processing plants.

The partnership mentioned in its first-quarter 2025 earnings transcript that even if oil production stays flat, the volume of natural gas and NGL will keep growing. This is because oil wells in the Permian also produce natural gas and NGLs. Even if oil production doesn’t increase much, these byproducts will still rise over time. Thus, higher volumes of the commodities will generate incremental cash flows for the partnership.

Should You Bet on EPD Right Away?

All the positive developments are getting reflected in the price chart. Over the past year, EPD surged 19%, outpacing the 18.3% improvement of the industry’s composite stocks.

One-Year Price Chart

However, certain uncertainties still surround the stock. One key concern is the performance of PDH 2, Enterprise Products’ second propane dehydrogenation facility. This plant, which transforms propane into propylene—a vital input for plastics and chemical production—is currently operating below its intended capacity. It has yet to achieve the efficiency and output levels originally anticipated.

Thus, investors should wait for the uncertainties to subside and refrain from buying the stock now. But those who have already invested should hold onto the stock. EPD currently carries a Zacks Rank #3 (Hold).  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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