3 Oil Pipeline Stocks With Solid Potential Amid Industry Strength

Industry Overview - The Zacks Oil and Gas - Production and Pipelines industry consists of companies that own and operate midstream energy infrastructure assets, including extensive pipeline networks for transporting crude oil, liquids, and natural gas [3] - Companies in this industry are also involved in processing and storing natural gas, with interests in natural gas distribution utilities serving millions of retail customers across North America [3] - Some firms are increasing investments in renewable energy and power transmission, including wind, solar, geothermal, and hydroelectric projects, allowing for additional cash flow generation alongside stable fee-based revenues from transportation assets [3] Business Model and Financial Stability - Midstream companies benefit from stable fee-based revenues due to long-term contracts, primarily take-or-pay contracts, which ensure predictable cash flow generation [4][2] - The industry is less vulnerable to oil and natural gas price volatility, making it an attractive investment option [1][4] - Despite significant debt loads, many companies have a favorable average cost of debt and a long average lifespan for their debt, reducing vulnerability to rising debt capital costs [6] Market Demand and Growth Potential - There is a rising demand for clean energy from data centers, positioning natural gas transportation companies to benefit as they can transport natural gas to gas-fired power plants supplying electricity to these centers [5] - Key players in the industry include Kinder Morgan, Enterprise Products Partners, and The Williams Companies, all of which are well-positioned to capitalize on this growing demand [2][15][21] Industry Performance and Valuation - The Zacks Oil and Gas - Production and Pipelines industry has outperformed the broader Zacks Oil - Energy sector but has lagged behind the S&P 500 Composite over the past year, with a 17.7% increase compared to the S&P 500's 17.8% [9] - The industry currently trades at a trailing 12-month enterprise value-to-EBITDA (EV/EBITDA) ratio of 14.01X, which is lower than the S&P 500's 18.74X but above the sector's 5.50X [12] Key Companies - Kinder Morgan (KMI): A major North American midstream energy company with stable fee-based revenues and strong growth potential from increasing liquefied natural gas (LNG) demand globally [15] - Enterprise Products Partners (EPD): A midstream energy giant with over 50,000 miles of pipeline assets and a strong focus on stable fee-based earnings, which are the largest contributor to its gross operating margin [17][18] - The Williams Companies (WMB): A leading midstream player with a vast network of natural gas transportation pipelines, transporting approximately 33% of the total natural gas used in the U.S., well-positioned to meet rising power demand from expanding data centers [21]