Although in the past few years, the number of MLPs have risen significantly which is a cause of concern for some of the investors but the overall trend is still bullish. Short interest in this sector is considerably low as compared to other sectors therefore, as MLPs continues to soar at the stock market, a short squeeze is highly unlikely.
Why Enterprise Products?
One thing which I like about Enterprise Products Partners L.P. (NYSE:EPD) in particular is that, unlike most of its peers, it has no general partner. This translates into lower capital costs as it does not have to make any payments, such as incentive distribution rights, to the general partner. This also means that there is more cash left to be distributed among the unit holders. On the other hand, Western Gas, has Anadarko Petroleum Corporation (NYSE:APC) as its general partner.
Second, in its most recent results, Enterprise Products has delivered a relatively better performance than Western Gas. In the first quarter Western Gas reported revenue growth of 2.3% to $229.75 million which translated into earnings of $0.31 per share. The company missed both revenue and income estimates. On other hand Enterprise Products beat the earnings but missed the revenue estimates. It reported earnings of $0.73 per share from revenues of $11.38 billion.
Third, Enterprise plans to spend $7.5 billion in the coming years for expansion while it is eyeing greater exposure to shale gas, particularly at the Eagle Ford where it has invested billions. Earlier in May, Jim Cramer identified Enterprise Products as one of the “best of the best” MLPs out there that you can own.
Fourthly, Enterprise Products is considerably cheaper than Western Gas but the former has generated a higher return on equity (ROE). Enterprise Products’ shares are trading at 21 times its full year profit estimates while it gives an ROE of 19.17%. On the other hand, Western Gas is trading 43 times its full year’s earnings estimates and has generated an ROE of just 6.88%.
Finally, Western Gas gives a yield of 3.3% while Enterprise Products gives 4.3% at current price levels. Therefore, although I recommend both firms, I believe that Enterprise Products is a bargain.
Sarfaraz Khan has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners L.P.. Sarfaraz is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Which of These MLPs Is a Bargain? originally appeared on Fool.com is written by Sarfaraz Khan.
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