Enbridge Inc. ( ENB Quick Quote ENB - Free Report) stock has gained 9% in the quarter-to-date (QTD) period, wherein the overall energy sector has been grappling with a volatile scenario due to the coronavirus pandemic. Headquartered in Calgary, Alberta, this midstream energy company — with a market cap of $64.4 billion — operates primarily in North America.
The company delivered an earnings surprise of 0.9%, on average, in the trailing four quarters. It continues to benefit from the U.S. Gas Transmission business.
Can It Retain Momentum?
The answer is yes and here’s why we think so:
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 substantial 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 figure of $4.57. Moreover, in its financial guidance update, the midstream energy player mentioned 2021 DCF projection in the band of C$4.70-C$5.00 per share. Enbridge’s efforts in strengthening the overall business by adding profitable growth projects and shedding non-core assets are noteworthy in this regard.
The Zacks Rank #3 (Hold) 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.
Notably, it is making continuous advancement toward the execution of C$16-billion growth projects. This is anticipated to help it secure an EBITDA growth of $2 billion from 2021 through 2023. Importantly, given execution of the ongoing capital growth projects and a resilient business model in place, the company has reaffirmed 5-7% DCF per share growth through 2023 and beyond.
However, there are a few factors that are holding back the stock from reaching its complete potential.
At the end of third-quarter 2020, the company reported total debt of C$67,132 million, and cash and cash equivalents of C$657 million. Its debt-to-capitalization ratio was almost 0.51, reflecting considerable debt exposure. This can affect the company’s financial flexibility. Moreover, it expects some unique headwinds in the second half of 2020 — such as drop in Texas Eastern system revenues — to offset the outperformance in the first half of this year.
Some better-ranked players in the energy space include
TC PipeLines, LP , Covanta Holding Corporation ( CVA Quick Quote CVA - Free Report) and Summit Midstream Partners, LP ( SMLP Quick Quote SMLP - 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 .
TC PipeLines’ bottom-line estimates for 2020 have increased 4% in the past 60 days.
Covanta Holding’s bottom line for 2021 is expected to rise 91.1% year over year.
Summit Midstream’s bottom-line estimates for 2020 have increased 24% in the past 60 days.
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