JP Morgan: Enterprise Products' (EPD.US) return prospects are at a moderate level, rating downgraded to "Neutral"

J.P. Morgan downgraded Enterprise Products (EPD.US) from "overweight" to "neutral" with a target price of $35. The reason is that its growth is relatively low, and the overall prospect for returns is in the middle range. Enterprise Products has a leading comprehensive service suite in the industry, supported by its dominant position in multiple commodities markets, and its huge financial flexibility sets it apart from its peers. However, J.P. Morgan analyst Jeremy Tonet believes it is a more balanced risk/reward proposition, with larger peers offering greater potential for total returns. In an industry where conflicts of interest often result in limited partners suffering unfavorable outcomes, Enterprise Products stands out with its impeccable track record. Its balance sheet strength and financial flexibility are also on par with its peers, but its EBITDA growth lags behind, with no growth expected this year. Tonet estimates a compound annual growth rate of about 3% from 2024 to 2028. Tonet wrote, "Excess capacity in multiple hydrocarbon logistics value chains has had a negative impact on optimization and organic growth opportunities, as competition is fierce - some companies are willing to take on more risk/accept lower returns - and the ongoing issue of propane dehydrogenation (PDH) calls into question the normal profit potential of assets, meaning their relative value is lower than traditional midstream assets." The analyst notes that the market seems to have already fully expected an acceleration of the stock buyback plan next year, but the size of the buyback could be disappointing. He also adds that institutional investors have lower interest in master limited partnerships (MLPs) compared to C-corporations, which is still a disadvantage, and in the short term, there are no catalysts that could significantly change this trend.