Canada-based Enbridge Inc. (ENB) is an energy infrastructure company with business platforms that include a network of crude oil, liquids, natural gas pipelines, regulated natural gas distribution utilities, and renewable power generation. The stock has delivered solid returns over the past year and year-to-date and is currently trading above its 50-day and 200-day moving averages.
The supercharged oil price rally shows no signs of slowing, with oil prices now reaching multi-year highs. U.S crude rose above $80 per barrel for the first time since late 2014, marking a 125% gain since the end of last October. And last week, OPEC and its allies announced that they are firm on their prior agreement to raise production by a modest 400,000 barrels per day in November, which may not be enough to meet the current demand surge.
The global supply crunch is expected to push the oil prices higher. Analysts expect this momentum to continue through the winter, and oil prices could hit the $100 per barrel mark. As a leading energy infrastructure company, ENB should benefit from the oil price rally.
However, the stock’s current valuation looks mixed. In terms of forward non-GAAP PEG, ENB is currently trading at 2.61x, which is 115.3% higher than the 1.21x industry average. However, ENB’s 17.12 trailing-12-months GAAP P/E ratio is 6.5% lower than the 18.30 industry average.
Here’s what could shape ENB’s performance in the near term:
ENB is taking active steps to achieve its net-zero emission target by 2050. Recently, the company announced its partnership with Vanguard Renewables to buy renewable natural gas (RNG). ENB intends to invest approximately $100 million in RNG upgrading equipment to convert RNG into pipeline-quality renewable natural gas, which it will then market to its customers.
In September, the company also updated the extension of its pipeline from Canada’s oil sands to the U.S. Midwest, which earlier was delayed due to opposition from environmentalists and indigenous groups. However, the company faces legal challenges, including a case filed in tribal court over a Minnesota water permit issued to ENB.
Also, ENB has entered an agreement with Moda Midstream, LLC and Moda’s financial sponsor EnCap Flatrock Midstream to acquire Moda Ingleside Energy Center (MIEC) and other Moda assets. MIEC is the nation’s largest crude export terminal by volume, with an aggregate storage capacity of more than 15 million barrels and an export capacity of 1.6 million barrels per day. So, the acquisition should prove to be highly beneficial for ENB.
For the three months ended June 30, 2021, ENB’s total operating revenues increased 37.6% from the same period last year to CAD10.95 billion ($8.77 billion). Its operating income declined 13.4% from its year-ago value to CAD1.82 billion ($1.46 billion), while its earnings attributable to common shareholders fell 15.4% year-over-year to CAD1.39 billion ($1.11 billion). The company’s EPS also decreased 15.9% year-over-year to CAD$0.69.
ENB’s trailing-12-months total debt stands at $55.29 billion, while its net debt came in at $54.98 billion. Its trailing-12-months operating cash flow stood at $7.54 billion, but its trailing-12-months levered free cash flow stood at negative $172.62 million. ENB’s debt/free cash flow ratio is negative 302.08.
ENB has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a grade of C for Value, consistent with its mixed valuation.
ENB has a B grade for Sentiment. This is justified because the company’s revenue and EPS are expected to increase 17.2% and 36.2%, respectively, year-over-year in the current quarter, ending December 2021.
Of the 49 stocks in the Foreign Oil & Gas industry, ENB is ranked #41.
Beyond what I have stated above, one can also view ENB’s grades for Quality, Growth, Momentum, and Stability here.
View the top-rated stocks in the Foreign Oil & Gas industry here.
Recent oil price trends favor companies that are engaged in the oil exploration and distribution business. ENB, with its extensive network of pipelines and assets, is one of the leading energy infrastructure providers and is expected to benefit from the industry tailwinds. However, ENB stock is currently trading at a somewhat stretched valuation, given its weak debt profile. So, we think it could be wise to wait for a better entry point in the stock.
How Does Enbridge Inc. (ENB) Stack Up Against its Peers?
While ENB has an overall POWR Rating of C, one might want to consider taking a look at its industry peer, LUKOIL PJSC (LUKOY), Ampol Limited (CTXAY), and Parex Resources Inc.( PARXF), which has an A (Strong Buy) rating.
ENB shares were trading at $41.59 per share on Tuesday morning, up $0.25 (+0.60%). Year-to-date, ENB has gained 34.63%, versus a 17.21% rise in the benchmark S&P 500 index during the same period.
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...