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Enbridge's Premium Stock Valuation: Too Pricey to Buy?
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Enbridge Inc. (ENB - Free Report) is currently viewed as relatively expensive, with the stock trading at a 15.56x trailing 12-month enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). This is higher than the broader industry average of 13.50x and more costly than other major midstream companies like Kinder Morgan Inc. (KMI - Free Report) and Enterprise Products Partners LP (EPD - Free Report) , which trade at 12.10x and 9.80x EV/EBITDA, respectively. Such a premium valuation generally indicates the market’s confidence in Enbridge’s prospects.
Image Source: Zacks Investment Research
However, such a premium demands closer scrutiny to assess whether it is justified by the company's fundamentals, growth outlook and current market conditions. A more in-depth analysis is needed to make that determination.
ENB’s Resilient Business & Project Pipeline Fuel Growth
Enbridge is a leading midstream energy player in North America, operating an extensive crude oil and liquids transportation network spanning 18,085 miles — the world's longest and most complex system. ENB’s gas transportation pipeline network spans 71,308 miles, covering 31 U.S. states, four Canadian provinces and offshore areas in the Gulf of Mexico.
Notably, Enbridge’s pipelines transport 20% of the total natural gas consumed in the United States. The company generates stable, fee-based revenues from these midstream assets, as they are booked by shippers on a long-term basis, minimizing commodity price volatility and volume risks.
The midstream energy major secures incremental cash flows from its C$24 billion backlog of secured capital projects, which include liquids pipelines, gas transmission, gas distribution and storage, and renewables, with the maximum in-service date of 2028.
Strong Dividends & Rising DCF Make ENB Stock Attractive
Enbridge has a strong focus on returning capital to its shareholders, as it has made dividend payments to shareholders for more than 69 years. Backed by its stable midstream business model, the company has increased its dividend payments at an average compound annual growth rate of 10% over the past 29 years. Currently, ENB offers a dividend yield of 6.5%, which is higher than the 5.7% of the composite stocks in the oil-energy sector.
Image Source: Zacks Investment Research
Considering its substantial backlog of midstream growth projects, it is expected that Enbridge will continue to reward shareholders with attractive dividend payments. The company's distributable cash flow (DCF) for the first six months of this year was C$6.32 billion, up from C$5.96 billion in the same period last year. This increase indicates that Enbridge is well-positioned to sustain and grow its dividend payouts.
Is ENB's Premium Stock Valuation Justified?
The positive developments have likely led to ENB’s premium valuations, as investors have high expectations for the company’s prospects and profitability. Consequently, they are willing to pay a premium for the stock, believing it will outperform both its peers and the broader market in the coming months.
However, there are several uncertainties regarding the stock. Enbridge, a major player in the midstream energy sector, carries a high level of debt, with a debt-to-capitalization ratio of 56.73%, exceeding the industry average of 55.28%. This situation presents considerable financial risks.
Image Source: Zacks Investment Research
Additionally, Enbridge is grappling with ongoing environmental, social, and governance (ESG) challenges. Its significant dependence on oil sands, which are among the least ESG-friendly energy sources, has attracted criticism from ESG-focused investors. This scrutiny could hinder future investments and adversely impact the company’s reputation.
The uncertainties surrounding Enbridge are likely reflected in its price performance, as the stock has gained 19.4%, trailing the industry’s composite stocks, which have surged 25.1%.
Image Source: Zacks Investment Research
Therefore, while the company’s long-term outlook is strong and some investors may be willing to accept the premium, caution is warranted given the concerns associated with the stock. Instead of rushing to add ENB, carrying a Zacks Rank #3 (Hold), it may be prudent to wait for a more advantageous entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Enbridge's Premium Stock Valuation: Too Pricey to Buy?
Enbridge Inc. (ENB - Free Report) is currently viewed as relatively expensive, with the stock trading at a 15.56x trailing 12-month enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA). This is higher than the broader industry average of 13.50x and more costly than other major midstream companies like Kinder Morgan Inc. (KMI - Free Report) and Enterprise Products Partners LP (EPD - Free Report) , which trade at 12.10x and 9.80x EV/EBITDA, respectively. Such a premium valuation generally indicates the market’s confidence in Enbridge’s prospects.
However, such a premium demands closer scrutiny to assess whether it is justified by the company's fundamentals, growth outlook and current market conditions. A more in-depth analysis is needed to make that determination.
ENB’s Resilient Business & Project Pipeline Fuel Growth
Enbridge is a leading midstream energy player in North America, operating an extensive crude oil and liquids transportation network spanning 18,085 miles — the world's longest and most complex system. ENB’s gas transportation pipeline network spans 71,308 miles, covering 31 U.S. states, four Canadian provinces and offshore areas in the Gulf of Mexico.
Notably, Enbridge’s pipelines transport 20% of the total natural gas consumed in the United States. The company generates stable, fee-based revenues from these midstream assets, as they are booked by shippers on a long-term basis, minimizing commodity price volatility and volume risks.
The midstream energy major secures incremental cash flows from its C$24 billion backlog of secured capital projects, which include liquids pipelines, gas transmission, gas distribution and storage, and renewables, with the maximum in-service date of 2028.
Strong Dividends & Rising DCF Make ENB Stock Attractive
Enbridge has a strong focus on returning capital to its shareholders, as it has made dividend payments to shareholders for more than 69 years. Backed by its stable midstream business model, the company has increased its dividend payments at an average compound annual growth rate of 10% over the past 29 years. Currently, ENB offers a dividend yield of 6.5%, which is higher than the 5.7% of the composite stocks in the oil-energy sector.
Considering its substantial backlog of midstream growth projects, it is expected that Enbridge will continue to reward shareholders with attractive dividend payments. The company's distributable cash flow (DCF) for the first six months of this year was C$6.32 billion, up from C$5.96 billion in the same period last year. This increase indicates that Enbridge is well-positioned to sustain and grow its dividend payouts.
Is ENB's Premium Stock Valuation Justified?
The positive developments have likely led to ENB’s premium valuations, as investors have high expectations for the company’s prospects and profitability. Consequently, they are willing to pay a premium for the stock, believing it will outperform both its peers and the broader market in the coming months.
However, there are several uncertainties regarding the stock. Enbridge, a major player in the midstream energy sector, carries a high level of debt, with a debt-to-capitalization ratio of 56.73%, exceeding the industry average of 55.28%. This situation presents considerable financial risks.
Additionally, Enbridge is grappling with ongoing environmental, social, and governance (ESG) challenges. Its significant dependence on oil sands, which are among the least ESG-friendly energy sources, has attracted criticism from ESG-focused investors. This scrutiny could hinder future investments and adversely impact the company’s reputation.
The uncertainties surrounding Enbridge are likely reflected in its price performance, as the stock has gained 19.4%, trailing the industry’s composite stocks, which have surged 25.1%.
Therefore, while the company’s long-term outlook is strong and some investors may be willing to accept the premium, caution is warranted given the concerns associated with the stock. Instead of rushing to add ENB, carrying a Zacks Rank #3 (Hold), it may be prudent to wait for a more advantageous entry point. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.