Analyst Note
| Stephen Ellis |Enterprise's first-quarter results broadly met our expectations, and we will hold our $25.50 fair value estimate and wide moat rating intact while we incorporate these results into our model. Winter storm Uri contributed an estimated $250 million in net gross operating margin, as similar to peers, Enterprise was able to benefit from selling natural gas out of storage, but some of these profits were offset by lost volumes from assets that were shutdown. Stripping out the Uri benefit, which we see as one-time in nature and not material enough to move our fair value estimate, results were close to flat, as Enterprise expects more of a recovery in 2022 and 2023 as U.S. volumes pick up with the economy's re-opening. At this stage, volumes still remain well below last year's levels across Enterprise's portfolio, though Uri certainly contributed. Overall gross operating margin was $2.3 billion compared with $2 billion last year, and the partnership generated over $350 million in free cash flow after capital spending and distributions.
Enterprise also disclosed that it has been studying energy "evolution" opportunities across hydrogen, carbon capture, and plastics recycling for the past two years. The effort is organizationwide--more specifically, hydrogen transportation and storage, carbon capture, and storing and upgrading the byproducts of recycled plastics. We agree with this approach as we expect it to yield new investment opportunities, and as Enterprise also pointed out, leads to a natural extension of its overall value chain.