How EPD's Contract Structure Shields Cash Flows From Inflation

Enterprise Products Partners LP’s EPD pipeline network spans more than 50,000 miles, transporting oil, natural gas and other commodities. The partnership also has more than 300 million barrels of liquid storage capacity, thereby generating stable cash flows.

The business model of Enterprise Products is inflation-protected because almost 90% of its long-term contracts include a provision for increasing fees when the business environment becomes inflationary. This is how the midstream energy player is able to safeguard its cash flow generation in all business scenarios.

EPD is also expected to generate incremental cash flows from its billions of dollars’ worth of key capital projects, which are either in service or set to come online. With the partnership’s business model being mostly inflation-protected and likely to generate incremental cash flows from project backlogs, the stock could be attractive for income seekers.

KMI & ENB Also Have Stable Business Models

Kinder Morgan Inc. KMI and Enbridge Inc. ENB are two other midstream energy majors. By the very nature of their businesses, both KMI and ENB also have predictable cash flows. This is because KMI and ENB generate stable fee-based earnings from their respective midstream assets.

EPD’s Price Performance, Valuation & Estimates

Units of Enterprise Products have jumped 17.2% over the past year compared with the 10.6% improvement of the composite stocks belonging to the industry.

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From a valuation standpoint, EPD trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 11.21X. This is below the broader industry average of 11.62X.

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The Zacks Consensus Estimate for EPD’s 2026 earnings has not seen any revisions over the past seven days.

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Enterprise Products 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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