As a shareholder of Enterprise Products, I can’t say that I was excited by the stock’s reaction to is earnings release last week, but after looking beyond the surface EPD presents a compelling buying opportunity for the medium-long term investor seeking a safe yield.

Earnings
For the second quarter, Enterprise Products earned 52 cents per share, compared with or 26 cents per share, in the year-ago quarter. The results beat Wall Street expectations by 16 cent. This large earnings surprise comes after an 18 cent earnings surprise in their first quarter. If these results were not astounding enough, EPD produced the results while its Independence Hub was impaired for 66 days during the quarter.

Distributions
Additionally, earlier this month EPD raised their cash distribution to shareholders by 1.5% over the first quarter 2008. Its increased distribution brings EPD shares payout to $2.06/unit annualized and is currently yielding 7.1%.

EPD’s total liquidity equaled $1.3 billion, which should give confidence to further distribution increases. EPD’s ability to tap multiple sources of capital (retained distributable cash flow, equity capital, debt capital raising and potential asset sales) should rest any concerns of a decrease in its distribution, which has not happened since going public in 1998.

Outlook
Going forward, EPD should have no difficulty maintaining its strong momentum as it has three large organic growth projects scheduled for completion in the second half of 2008, which will boost growth into 2009. These projects are outlined below.

• Meeker natural gas processing facility - Will double processing capacity to 1.5 Bcf/d and increase NGL extraction capability to 70,000 barrels per day
• Sherman extension to the Texas intrastate natural gas pipeline
• Exxon central treating facility - Will ship up to 1.1 Bcf/d of natural gas from the Barnett Shale region.

Valuation
Current 12-month analyst price targets for EPD average $35.00, which can be derived trough a basic Discounted Dividend Model. Using its current distributions and conservative forward estimates, a $35.00 price target is more than reasonable.

With its current shares trading at $28.95 this price would reflect a 27% 12 month return.

Summary
With two quarters of spectacular growth and increasing prospects for continued operational success, one would expect EPD’s stock to have increased drastically on this release. This is incorrect – EPD was down 11 cents on the day of its earnings release, giving medium-long term investors a compelling entry point.

Tags: Dividends, EPD, Equities, MLPs, Oil, Yield