Enterprise Products Partners L.P. (NYSE:EPD) traded at around $37 on October 7, down 0.94% on the day and 17.69% higher over twelve months.
A caller on the October 6 episode of Mad Money asked Jim Cramer why the units had lagged despite a 13-times multiple and a 6% yield. Cramer blamed the bond market, saying the 30-year was heading toward 6% or possibly six and a quarter.
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The Explanation Is Arithmetic, Not Sentiment:
Enterprise Products Partners yields 5.97% on a distribution rate of $2.21. If the 30-year Treasury reaches the level Cramer described, a government bond pays more than the partnership does.
At that point the units have to compete on growth rather than on income, and midstream assets are not a growth story. This is why a business with no operational problem can fall for reasons that have nothing to do with it. The distribution itself is covered. Free cash flow of $3.46 billion arrived against a payout consuming 76.04% of earnings.
Cramer was positive on the business in the same answer, calling it well run and telling the caller to own it. In May we ranked this year’s best dividend performers. The one that finished first has since fallen 38%.
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What the Pipelines Actually Earn:
The margins are the case for holding through a rate cycle. Operating margin is 11.76% and net margin is 10.79%, and the gap between them is almost nothing. Keeping nearly all of the operating profit means very little is lost to interest and tax, which is the structural advantage of a partnership.
Return on equity of 20.85% on book value of $14.01 a unit is a strong figure for an asset-heavy business. The constraint is the balance sheet. Debt to equity is 109.97% on $34.21 billion of borrowings, and a current ratio of 0.93 is below one. Capital spending of $5.40 billion against $8.86 billion of operating cash flow is where most of the cash goes before the distribution.
In January, we ranked ten stocks for high returns. The one we put first has returned almost 30% since.
The Valuation Case:
Enterprise Products Partners traded at around $37 on October 7 and is worth $79.71 billion. Sustainability of the distribution rests on throughput rather than on commodity prices, because the fees are contracted. On earnings, the units sit at 12.95 times trailing and 11.60 times forward, close to the figure the caller quoted.
Enterprise value to EBITDA of 11.11 counts the debt and is the more complete measure here. A beta of 0.49 means the units move at half the index, which is what the income buyer is paying for.
Conclusion:
Cramer’s diagnosis fits the figures. The units yield 5.97% while he expects the 30-year to reach 6%, and $3.46 billion of free cash flow with a 76.04% payout means the distribution is not the problem. However, debt-to-equity of 109.97% on $34.21 billion of borrowings becomes more expensive in exactly the rate environment he describes, and a current ratio of 0.93 leaves no cushion. The number to watch is the 30-year Treasury yield, because 5.97% stops being a reason to own this the moment a government bond pays more.
Market Sentiment:
Enterprise Products Partners L.P. was held by 32 hedge funds with a combined stake value of about $0.47 billion at the end of Q2 2026 in the Insider Monkey database. This is level with 32 hedge fund holders with a cumulative investment value of around $0.44 billion in the previous quarter.
While we acknowledge the risk and potential of EPD as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than EPD and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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This article is originally published at Insider Monkey.
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