The Razor's Edge

2-Year Price History

Ockham's Rating

Rating Specific Information Withheld Premium Access Only

EPD Revenue

As a value investing shop, we are interested in seeing how EPD's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 0.89x and the low end of the range at 0.66x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for EPD of 0.43x is well below its normal historic Price to Sales levels. At a price of $22.45, EPD is 46% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

EPD Cash Earnings

As the old saying goes, "Cash is King!" However, we prefer to capture a few other items within our analysis to identify "cash earnings". Nevertheless, an analysis of Cash Earnings is absolutely pivotal to assessing a company's value, and currently EPD is significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for EPD, the current level of Cash Earnings compared to its historical levels helps identify where EPD is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 14.42 and a historical low Cash Earnings per share ratio of 10.76, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for EPD? From the Ockham perspective, we are looking specifically at EPD to see if the market is recognizing the huge disparity between EPD's past stock price to Cash Earnings ratio to today's levels. At a difference of 49% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at EPD. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

EPD Dividends

While it is not necessary to pay an attractive dividend or a dividend at all, to receive a positive rating from Ockham, we view dividends as an additionally helpful measure in determining the future potential of any company.

In EPD’s case, the estimated annual dividend is $2.09 resulting in a current dividend yield of 9.31%. Similar to our review of Sales and Cash Earnings per share, we evaluate dividend yields from EPD against the historic high and low levels over the past 10 years. The highest dividend yield from EPD over this period was 13.06% while the lowest dividend yield was 4.42% Therefore, the current dividend yield of EPD is above the historical median by 6.52%. This is definitely a positive in our view.