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Here's Why You Should Hold on to Enbridge Stock For Now

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Enbridge Inc. (ENB - Free Report) has witnessed upward estimate revisions for 2020 and 2021 earnings in the past 30 days. In fact, six out of seven analysts have revised earnings estimates upward for 2020, while three out of eight analysts have upwardly revised the same for 2021. Also, despite the coronavirus-induced unfavorable business environment, this leading midstream-energy player’s stock price has improved 5.7% quarter to date, outperforming the industry’s 4.3% rally.

 

Factors Working in Favor

The company, currently carrying Zacks Rank #3 (Hold), has a stable business model and is not significantly exposed to volatility in oil and gas prices. Almost 25% of crude volumes produced in North America is being transported through the company’s liquid pipeline.

Moreover, the company’s midstream assets are responsible for transporting 20% of natural gas that is being consumed in the United States. Enbridge also serves 3.8 million retail customers in Ontario and Quebec, through its Gas Distribution and Storage business. All the midstream assets are likely to fetch the company stable fee-based revenues in the years to come.

Enbridge is strongly focused on executing its three-year capital program of C$10 billion for secured growth projects. Of the total amount, the company is yet to spend C$5.5 billion. The company is likely to generate additional fee-based revenues once the projects start operating.

Risks

It is to be noted that although Enbridge’s long-term business fundamentals look good, the declining production of commodities owing to the coronavirus-induced dented energy demand is likely to hurt short-term demand for the company’s midstream assets.

Moreover, the midstream-energy player expects some unique headwinds in the second half of 2020, such as a drop in Texas Eastern system revenues, to offset the outperformance in the first half of this year.

Moreover, at the end of second-quarter 2020, the company reported total debt of C$67,132 million, and cash and cash equivalents of C$462 million. Its debt-to-capitalization ratio was almost 0.50, reflecting considerable debt exposure. In fact, Enbridge’s ability to pay off a portion of its total long-term debt of C$63,680 million is in question since the company is experiencing weakness in its operations, as witnessed in declining revenues in the past two quarters.

Stocks to Consider

A few better-ranked players in the energy space are Cimarex Energy Co , Concho Resources Inc. and EOG Resources, Inc. (EOG - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cimarex Energy has seen upward earnings estimate revisions for 2020 in the past 30 days.

Concho is likely to see earnings growth of 21.6% in 2020.

EOG Resources’ 2020 bottom-line estimates have risen more than 200% over the past 30 days.

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