Why Units of EnLink Midstream Are Surging Today

What happened

Units of EnLink Midstream (NYSE:ENLC) had jumped 11% by 9:45 a.m. EST on Thursday. Fueling the energy company’s rally were its third-quarter results and the launch of a unit repurchase program. 

So what

EnLink Midstream reported reasonably solid third-quarter results, given the continued turbulence in the energy market. The midstream company produced $261.6 million of adjusted EBITDA during the period, which, while flat from the year-ago period, was a 3% improvement from the second quarter. Because of that, the company remains on track to meet or exceed the high end of its $950 million to $1.025 billion guidance range. 

Pipelines at twilight.

Image source: Getty Images.

Meanwhile, the company generated $98.7 million of free cash flow after paying its 12.6%-yielding distribution during the quarter. As a result, it’s on track to exceed the $280 million high end of its guidance range by 5% to 10%. 

That strong cash flow enabled the company to reduce its net debt by $145 million during the quarter. Meanwhile, it recently enhanced its financial flexibility by securing a $250 million accounts receivable securitization facility. Because of these factors, EnLink’s board authorized the repurchase of up to $100 million of its units. That’s a sizable amount for a company with a market capitalization of less than $1.5 billion even after this morning’s rally. 

Now what

Despite today’s rebound and the improvements in its financial results and balance sheet, units of EnLink are still down more than 50% this year. That’s leading the midstream company to begin using a bit of its financial flexibility to start repurchasing some of its beaten-down units. Add that to its big-time yield, and EnLink has significant upside potential as energy market conditions continue improving.

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