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Enterprise Products' Petrochemical Pivot Holds Promise

We see a growth opportunity that could offer valuation upside.

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It may be too early to call the oil and gas businesses of Enterprise Products Partners (EPD) legacy businesses, but that day could be coming. The prospects for midstream investors are potentially unnerving, and we think the better management teams are laying the groundwork for future growth that fully incorporates the rise of renewables and the ongoing energy transition. While Enterprise remains on the offense with its oil and gas efforts, we think its petrochemical business offers some of the best near- to medium-term growth prospects as the partnership plans to expand the gross operating margin for the business to $1.3 billion in 2024 from an estimated $764 million in 2020. We think this growth opportunity is unique in our U.S. midstream coverage, as no other company has petrochemical investments. This growth doesn’t come without risks, as there are ample environmental, social, and governance considerations that Enterprise must manage better, in our view, but we think the upside is compelling.

A Larger Petrochemical Business Has Positive Valuation Implications

Stephen Ellis does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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