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Here's Why Investors are Holding Enbridge (ENB) Stock Now
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Enbridge Inc. (ENB - Free Report) is well poised for growth on the back of low-risk inventory of midstream growth projects. However, levered balance sheet continues to be a concern.
Headquartered in Calgary, Alberta, Enbridge is a leading energy infrastructure company. One of its businesses involves the transportation of energy through the most extensive and advanced crude and liquids pipeline system that spreads across 17,127 miles globally. Through the Mainline and Express pipelines, the company transports 3 million barrels of crude every day, which accounts for almost 63% of crude oil production in Canada that is transported to the United States. Its earnings growth for the next five years is expected to be 9.7%.
It beat the Zacks Consensus Estimate for earnings once in the last four quarters, met the same on two occasions and missed once. As such, it delivered an average surprise of 3.4% during this period.
Let’s take a closer look at the factors that substantiate its Zacks Rank #3 (Hold).
What’s Favoring the Stock?
Enbridge has the longest and most advanced crude and liquids pipeline system in the world that spreads across 17,127 miles. In Canada, the company is touted to be the largest natural gas distributer. Hence, it is quite obvious that a significant portion of the company’s earnings is generated from transportation operations, driven by a string of long-term contracts. It transports around 25% of crude oil produced in the North America region. The solid contract base will likely provide the company with stable cash flow in the coming years.
For 2020, it has reaffirmed its guidance for DCF per share in the band of C$4.50-C$4.80, the top end of which suggests a rise from the 2019 DCF of $4.57. This reflects Enbridge’s efforts in strengthening overall businesses by shedding non-core assets and adding profitable growth projects.
The company has a total of C$11 billion of low-risk inventory of midstream growth projects that are coming online from 2020 through 2023. This reflects Enbridge’s plan of securing additional fee-based revenues in the coming years. Its 118-mile PennEast Pipeline Project, which is expected to meet the growing demand of natural gas in New Jersey and Pennsylvania, is commendable. Moreover, it has gas transmission projects like Spruce Ridge and T-South Expansion lined up for 2021.
Hurdles in Growth Path
At the end of second-quarter 2020, the company reported long-term debt of C$63,680 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, the company’s ability to pay off a portion of total long-term debt is questionable since there has been prolonged weakness in global energy demand, without the possibility of recovery anytime soon.
Over the past year, Enbridge has mostly been yielding lower dividend than the industry. Also, given significantly higher payout than the industry, sustainability of the company’s dividend payment is questionable as many energy firms are considering dividend cuts since global energy demand has been affected by the coronavirus pandemic. Moreover, the midstream energy player expects some unique headwinds in second-half 2020 such as drop in Texas Eastern system revenues, which may offset the outperformance in the first half.
To Sum Up
Despite significant prospects, Enbridge’s balance sheet weakness is concerning. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Stocks to Consider
Some better-ranked players in the energy space include DCP Midstream, LP , Apache Corporation (APA - Free Report) and Matador Resources Company (MTDR - Free Report) . While DCP Midstream has a Zacks Rank #1 (Strong Buy), Apache and Matador Resources hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
DCP Midstream’s bottom line for 2021 is expected to skyrocket 156.4% year over year.
Apache’s bottom line for 2021 is expected to surge 84.3% year over year.
Matador Resources’ sales for 2021 are expected to rise 12.2% year over year.
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A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
Image: Bigstock
Here's Why Investors are Holding Enbridge (ENB) Stock Now
Enbridge Inc. (ENB - Free Report) is well poised for growth on the back of low-risk inventory of midstream growth projects. However, levered balance sheet continues to be a concern.
Headquartered in Calgary, Alberta, Enbridge is a leading energy infrastructure company. One of its businesses involves the transportation of energy through the most extensive and advanced crude and liquids pipeline system that spreads across 17,127 miles globally. Through the Mainline and Express pipelines, the company transports 3 million barrels of crude every day, which accounts for almost 63% of crude oil production in Canada that is transported to the United States. Its earnings growth for the next five years is expected to be 9.7%.
It beat the Zacks Consensus Estimate for earnings once in the last four quarters, met the same on two occasions and missed once. As such, it delivered an average surprise of 3.4% during this period.
Enbridge Inc Price and EPS Surprise
Enbridge Inc price-eps-surprise | Enbridge Inc Quote
Let’s take a closer look at the factors that substantiate its Zacks Rank #3 (Hold).
What’s Favoring the Stock?
Enbridge has the longest and most advanced crude and liquids pipeline system in the world that spreads across 17,127 miles. In Canada, the company is touted to be the largest natural gas distributer. Hence, it is quite obvious that a significant portion of the company’s earnings is generated from transportation operations, driven by a string of long-term contracts. It transports around 25% of crude oil produced in the North America region. The solid contract base will likely provide the company with stable cash flow in the coming years.
For 2020, it has reaffirmed its guidance for DCF per share in the band of C$4.50-C$4.80, the top end of which suggests a rise from the 2019 DCF of $4.57. This reflects Enbridge’s efforts in strengthening overall businesses by shedding non-core assets and adding profitable growth projects.
The company has a total of C$11 billion of low-risk inventory of midstream growth projects that are coming online from 2020 through 2023. This reflects Enbridge’s plan of securing additional fee-based revenues in the coming years. Its 118-mile PennEast Pipeline Project, which is expected to meet the growing demand of natural gas in New Jersey and Pennsylvania, is commendable. Moreover, it has gas transmission projects like Spruce Ridge and T-South Expansion lined up for 2021.
Hurdles in Growth Path
At the end of second-quarter 2020, the company reported long-term debt of C$63,680 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, the company’s ability to pay off a portion of total long-term debt is questionable since there has been prolonged weakness in global energy demand, without the possibility of recovery anytime soon.
Over the past year, Enbridge has mostly been yielding lower dividend than the industry. Also, given significantly higher payout than the industry, sustainability of the company’s dividend payment is questionable as many energy firms are considering dividend cuts since global energy demand has been affected by the coronavirus pandemic. Moreover, the midstream energy player expects some unique headwinds in second-half 2020 such as drop in Texas Eastern system revenues, which may offset the outperformance in the first half.
To Sum Up
Despite significant prospects, Enbridge’s balance sheet weakness is concerning. Nevertheless, we believe that systematic and strategic plan of action will drive its long-term growth.
Stocks to Consider
Some better-ranked players in the energy space include DCP Midstream, LP , Apache Corporation (APA - Free Report) and Matador Resources Company (MTDR - Free Report) . While DCP Midstream has a Zacks Rank #1 (Strong Buy), Apache and Matador Resources hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
DCP Midstream’s bottom line for 2021 is expected to skyrocket 156.4% year over year.
Apache’s bottom line for 2021 is expected to surge 84.3% year over year.
Matador Resources’ sales for 2021 are expected to rise 12.2% year over year.
Biggest Tech Breakthrough in a Generation
Be among the early investors in the new type of device that experts say could impact society as much as the discovery of electricity. Current technology will soon be outdated and replaced by these new devices. In the process, it’s expected to create 22 million jobs and generate $12.3 trillion in activity.
A select few stocks could skyrocket the most as rollout accelerates for this new tech. Early investors could see gains similar to buying Microsoft in the 1990s. Zacks’ just-released special report reveals 8 stocks to watch. The report is only available for a limited time.
See 8 breakthrough stocks now>>