BUSINESS
EnLink Midstream, LLC provides midstream energy services in the United States. It operates through Permian, Louisiana, Oklahoma, North Texas, and Corporate segments. The company is involved in gathering, compressing, treating, processing, transporting, storing, and selling natural gas; fractionating, transporting, storing, and selling natural gas liquids; and stabilizing, trans-loading , and condensate crude oil , as well as providing brine disposal services. Its midstream energy asset network includes approximately 12,100 miles of pipelines; 22 natural gas processing plants;7 fractionators with approximately 320,000 barrels per day; barge and rail terminals; product storage facilities; brine disposal wells; and a crude oil trucking fleet. The company was incorporated in 2013 and is based in Dallas, Texas.
INVESTMENT RATING
Reflecting future returns on capital that are forecasted to be above the cost of capital, ENLC is expected to continue to be a major Value Builder.
Enlink Midstream has a current Value Trend Rating of D (Negative).
The Value Trend Rating reflects very contradictory signals from PTR’s two proprietary measures of a stock’s attractiveness. Enlink Midstream has a very low Appreciation Score of 12 but a good Power Rating of 75, and the Negative Value Trend Rating results.
Enlink Midstream’s stock is selling significantly above targeted value. The current stock price of $12.94 compares to targeted value 12 months forward of $5.
Enlink Midstream’s very low appreciation potential results in an appreciation score of 12 (88% of the universe has greater appreciation potential.)
Enlink Midstream has a Power Rating of 75. (This good Power Rating indicates that ENLC has a better chance of achieving attractive investment performance over the near to intermediate term than all but 25% of companies in the universe.)
Factors contributing to this good Power Rating include: the Natural Gas Transmission comparison group is in a strong phase currently; and recent price action has been favorable. An offsetting factor is earnings estimate behavior for ENLC has been slightly negative recently.
INVESTMENT PROFILE
ENLC’s financial strength is below average. Financial strength rating is 32.
Relative to the S&P 500 Composite, Enlink Midstream LLC has slightly more Value than Growth characteristics; its appeal is likely to be to investors neutral towards Income; the perception is that ENLC is extremely high risk. All factors are relative weaknesses. Relative weaknesses for ENLC include: low historical profitability, low financial strength, high stock price volatility, high financial leverage, low expected growth, low historical growth, and high earnings variability. ENLC’s valuation is moderate: high dividend yield, high P/E ratio, and moderate price/book ratio. ENLC has unusually low market capitalization.
CURRENT SIGNALS
Enlink Midstream’s current operations are strong. Return on equity is rising, reflecting: improving asset utilization; widening pretax margins; rising tax keep rate; and rising leverage.
Enlink Midstream’s current technical position is mixed. The 200 day moving average is in an uptrend. The stock price is below its 200 day moving average.
ALERTS
Recent small negative changes in fundamentals have impacted Enlink Midstream LLC (NYSE: ENLC): significant quarterly earnings deceleration occurred.
The stock is currently rated D.
On 3/12/24, Enlink Midstream LLC (NYSE: ENLC) stock increased 1.4%, closing at $12.94. However, this advance was accompanied by unusually low trading volume at 52% of normal. Relative to the market the stock has been strong over the last nine months and has risen 2.6% during the last week.
CASH FLOW
In 2023, Enlink Midstream LLC generated a very significant increase in cash of +$6 million (+27%). Sources of cash were much larger than uses. Cash generated from 2023 EBITDA totaled +$1,371 million. Non-operating uses consumed -$173 million (-13% of EBITDA). Cash taxes consumed -$1 million (-0% of EBITDA). Re-investment in the business amounted to -$258 million (-19% of EBITDA). On a net basis, debt investors removed -$421 million (-31% of EBITDA) while equity investors withdrew -$511 million (-37% of EBITDA).
ENLC’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Enlink Midstream Llc Peer Group. (Since 2019 Non-operating Income, %EBITDA has accelerated very sharply.) In most years, Enlink Midstream LLC was in the lower quartile and third quartile. Currently, Enlink Midstream LLC is slightly below median at -13% of EBITDA (-$173 million).
ENLC’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Enlink Midstream Llc Peer Group. In most years, Enlink Midstream LLC was in the top quartile. Currently, Enlink Midstream LLC is at the upper quartile at -0% of EBITDA (-$1 million).
ENLC’s Business Re-investment, %EBITDA has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by a similar trend for the Enlink Midstream Llc Peer Group. In most years, Enlink Midstream LLC was in the second quartile and lower quartile. Currently, Enlink Midstream LLC is slightly above median at -19% of EBITDA (-$258 million).
ENLC’s Debt Investors, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Enlink Midstream Llc Peer Group. In most years, Enlink Midstream LLC was in the second quartile and top quartile. Currently, Enlink Midstream LLC is lower quartile at -31% of EBITDA (-$421 million).
ENLC’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Enlink Midstream Llc Peer Group. In most years, Enlink Midstream LLC was in the third quartile and top quartile. Currently, Enlink Midstream LLC is substantially below median at -37% of EBITDA (-$511 million).
ENLC’s Change in Cash, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by stability for the Enlink Midstream Llc Peer Group as well. In most years, Enlink Midstream LLC was in the third quartile and top quartile. Currently, Enlink Midstream LLC is slightly above median at +0% of EBITDA (+$6 million).
ENLC’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Enlink Midstream Llc Peer Group as well. In most years, Enlink Midstream LLC was in the lower quartile and third quartile. Currently, Enlink Midstream LLC is lower quartile at +0%.
PROFITABILITY
ENLC’s return on equity has improved very significantly since 2014. The current level of 20.6% is 4.57X the low for the period and is -25.5% from the high.
ENLC’s very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors is a major performance consideration.
The productivity of ENLC’s assets rose over the full period 2014-2023: asset turnover has enjoyed a very strong overall uptrend.
Reinforcing this trend, pretax margin enjoyed a volatile overall uptrend that accelerated very sharply from the 2019 level.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
ENLC’s return on equity is substantially above median (20.6%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is substantially above median (5.0%) reflecting asset turnover that is upper quartile (0.83X) and slightly above median pretax margin (6.0%).
Tax “keep” rate (income tax management) is lower quartile (50.0%) resulting in after tax return on assets that is above median.
Financial leverage (leverage) is substantially above median (8.32X).
GROWTH RATES
There are no significant differences between Enlink Midstream LLC’s longer term growth and growth in recent years.
Enlink Midstream LLC’s historical income statement growth has been higher than growth in the balance sheet. Revenue growth has exceeded asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been -7.1% per year.
Total asset growth has been -15.1% per year.
Annual E.P.S. growth has been -9.1% per year.
Equity growth has been -20.8% per year.
Enlink Midstream LLC’s consensus growth rate forecast (average of Wall Street analysts) is 3.0% — substantially above the average of the historical growth measures.
Relative to the Enlink Midstream Llc Peer Group, Enlink Midstream LLC’s historical growth measures are generally lower quartile. E.P.S. growth (-9.1%) has been substantially below median. Total asset growth (-15.1%) has been lower quartile. Revenue growth (-7.1%) has been lower quartile. Equity growth (-20.8%) has been lower quartile.
Consistent with this pattern, consensus growth forecast (3.0%) is also at the lower quartile.
PRICE HISTORY
Over the full time period, Enlink Midstream LLC’s stock price performance has been variable and significantly below market. Between March, 2014 and March, 2024, Enlink Midstream LLC’s stock price fell -62%; relative to the market, this was a -86% loss. Significant price moves during the period: 1) September, 2020 – October, 2021: +234%; 2) March, 2020 – August, 2020: +172%; 3) December, 2019 – March, 2020: -82%; 4) March, 2019 – November, 2019: -63%; 5) March, 2017 – December, 2018: -51%; and 6) February, 2016 – March, 2017: +132%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 14.5% is slightly above median relative to the S&P 500 Composite.
In addition to being slightly above median relative to S&P 500 Composite, current annual total return performance through February, 2024 of 14.5% is at median relative to Enlink Midstream LLC Peer Group.
Current 5-year total return performance of 11.0% is slightly above median relative to the S&P 500 Composite.
Through February, 2024, with slightly above median current 5-year total return of 11.0% relative to S&P 500 Composite, Enlink Midstream LLC’s total return performance is above median relative to Enlink Midstream LLC Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, ENLC’s overall valuation is normal. The highest factor, the price/equity ratio, is above median. Price/earnings ratio is above median. Ratio of enterprise value/assets is below median. Ratio of enterprise value/earnings before interest and taxes is near the lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Relative to Enlink Midstream LLC Peer Group, ENLC’s overall valuation is high. The highest factor, the price/equity ratio, is upper quartile. Price/earnings ratio is upper quartile. Ratio of enterprise value/assets is at the upper quartile. Ratio of enterprise value/revenue is below median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is below median.
Enlink Midstream LLC has a minor value gap compared to the median valuation. For ENLC to rise to median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.53X to 1.60X. If ENLC’s ratio of enterprise value/revenue were to rise to 1.60X, its stock price would be lower by $1 to $14.
For ENLC to hit lower quartile valuation relative to the Enlink Midstream LLC Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 1.53X to 1.43X. If ENLC’s ratio of enterprise value/revenue were to fall to 1.43X, its stock price would decline by $-1 from the current level of $13.
VALUE TARGETS
Reflecting future returns on capital that are forecasted to be above the cost of capital, ENLC is expected to continue to be a major Value Builder.
Enlink Midstream LLC’s current Price Target of $6 represents a -52% change from the current price of $12.94.
Enlink Midstream’s very low appreciation potential results in an appreciation score of 12 (88% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 12, the high Power Rating of 75 results in an Value Trend Rating of D.
Enlink Midstream LLC’s current Price Target is $6 (+31% from the 2023 Target of $5 but -52% from the 03/12/24 price of $12.94). This rise in the Target is the result of a -5% decrease in the equity base and a +38% increase in the price/equity multiple. One Driver has a positive impact on the price/equity multiple, one has a negative impact, and one has no effect. The forecasted increase in return on equity has a very large positive impact on the price/equity multiple. The forecasted growth has no impact. The forecasted increase in cost of equity has a slight negative impact.
PTR’s return on equity forecast is 34.5% — substantially above our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2021 low of 4%.
PTR’s growth forecast is 0.0% — in line with our recent forecasts. Forecasted growth suffered a dramatic, steady decline between 2015 and 2023. The current forecast is significantly below the 2016 peak of 28%.
PTR’s cost of equity forecast is 13.2% — in line with recent levels. Forecasted cost of equity enjoyed a dramatic, erratic decline between 2015 and 2023. The current forecast is significantly above the 2021 low of 2.2%.
At Enlink Midstream LLC’s current price of $12.94, investors are placing a positive value of $3 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 0.0% per year, and a return on equity of 23.4% versus a cost of equity of 12.3%.
PTR’s 2025 Price Target of $6 is based on these forecasts and reflects an estimated value of existing assets of $10 and a value of future investments of $-4.
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