Enterprise Products Partners, L.P. (EPD) reported strong third-quarter results, raised quarterly distribution, and declared that it had sufficient internal resources to meet its next year's growth capital needs. Total gross operating margin increased 32% year-over-year, primarily driven by the diversified NGL and natural gas pipeline and storage businesses.

Importantly, the master limited partnership (MLP) announced a 6.6% year-over-year increase in quarterly distribution to the annualized run rate of $2.09 per unit. Quarterly distributable cash flows provided very comfortable 1.2x coverage to cash distributions to limited partners. Our continued favorable view of EPD units reflects the partnership's diversified asset base, strong distribution growth prospects, and attractive valuation.

Enterprise common units are trading at a premium to its peer group (lower yield = higher value). This represents a 510 basis points (bps) spread over the 10-year Treasury bond, compared to the peer group s average spread of 624 bps. Our new $28 price objective, reduced from $33 before, reflects a distribution run rate of $2.24 per unit (assuming a distribution growth of 7%) and a 375 bps spread over our unchanged 10-year Treasury bond yield expectation of 4.50% over the next 12 months.

We believe that Enterprise's status as a bellwether for the group, its diversified asset base, cap on GP IDRs at 25%, and one of the strongest organic growth pipelines in our coverage make it a core MLP holding.