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ENB Trades at Premium Valuation: Is the Stock a Buy or Hold Now?
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Enbridge Inc. (ENB - Free Report) is currently considered relatively overvalued, trading at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 16.74x. This figure surpasses the broader industry average of 14.73x and is higher than other major midstream companies such as Kinder Morgan Inc. (KMI - Free Report) and Enterprise Products Partners LP (EPD - Free Report) , which trade at 13.95x and 10.44x EV/EBITDA, respectively. This premium valuation reflects the market’s confidence in Enbridge’s prospects.
Image Source: Zacks Investment Research
However, such a premium necessitates careful evaluation to determine whether it is supported by the company's fundamentals, growth potential and prevailing market conditions. A more detailed analysis is essential to reach a conclusion.
ENB’s Resilience & Active Project Pipeline Propel Expansion
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$27 billion backlog of secured capital projects, which include liquids pipelines, gas transmission, gas distribution and storage, and renewables. The maximum in-service date is 2029.
ENB’s Strong Dividends and Growing DCF Enhance Appeal
Enbridge prioritizes returning capital to shareholders, as evidenced by 29 consecutive years of dividend growth, earning its status as a dividend aristocrat. Currently, ENB offers a dividend yield of 6.2%, which is higher than the 5.3% of the composite stocks in the industry.
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 nine months of this year was C$8.92 billion, up from C$8.54 billion in the same period last year. This increase indicates that Enbridge is well-positioned to sustain and grow its dividend payouts.
ENB Leverages LNG and Renewables for Sustainable Growth
Enbridge is well-positioned to capitalize on the growing global demand for LNG exports. This is because the midstream energy player’s vast pipeline network is strategically linked to more than 30% of both current and planned capacity for LNG export.
ENB is also gaining on the renewable business front. Projects like the 815 MW Sequoia Solar in Texas and the third phase of Fox Squirrel Solar demonstrate Enbridge's commitment to renewable energy growth???.
Assessing ENB’s High Valuation
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 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 58.1%, exceeding the industry average of 56.1%. 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.
Also, a court decision has temporarily halted progress on ENB’s Rio Bravo pipeline, and the project needs to address the legal challenge before it can continue.
The uncertainties surrounding Enbridge are likely reflected in its price performance, as the stock has gained 29.9% in the past year, trailing the industry’s composite stocks, which have surged 42.7%.
One-Year Price Chart
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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ENB Trades at Premium Valuation: Is the Stock a Buy or Hold Now?
Enbridge Inc. (ENB - Free Report) is currently considered relatively overvalued, trading at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 16.74x. This figure surpasses the broader industry average of 14.73x and is higher than other major midstream companies such as Kinder Morgan Inc. (KMI - Free Report) and Enterprise Products Partners LP (EPD - Free Report) , which trade at 13.95x and 10.44x EV/EBITDA, respectively. This premium valuation reflects the market’s confidence in Enbridge’s prospects.
However, such a premium necessitates careful evaluation to determine whether it is supported by the company's fundamentals, growth potential and prevailing market conditions. A more detailed analysis is essential to reach a conclusion.
ENB’s Resilience & Active Project Pipeline Propel Expansion
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$27 billion backlog of secured capital projects, which include liquids pipelines, gas transmission, gas distribution and storage, and renewables. The maximum in-service date is 2029.
ENB’s Strong Dividends and Growing DCF Enhance Appeal
Enbridge prioritizes returning capital to shareholders, as evidenced by 29 consecutive years of dividend growth, earning its status as a dividend aristocrat. Currently, ENB offers a dividend yield of 6.2%, which is higher than the 5.3% of the composite stocks in the industry.
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 nine months of this year was C$8.92 billion, up from C$8.54 billion in the same period last year. This increase indicates that Enbridge is well-positioned to sustain and grow its dividend payouts.
ENB Leverages LNG and Renewables for Sustainable Growth
Enbridge is well-positioned to capitalize on the growing global demand for LNG exports. This is because the midstream energy player’s vast pipeline network is strategically linked to more than 30% of both current and planned capacity for LNG export.
ENB is also gaining on the renewable business front. Projects like the 815 MW Sequoia Solar in Texas and the third phase of Fox Squirrel Solar demonstrate Enbridge's commitment to renewable energy growth???.
Assessing ENB’s High Valuation
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 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 58.1%, exceeding the industry average of 56.1%. 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.
Also, a court decision has temporarily halted progress on ENB’s Rio Bravo pipeline, and the project needs to address the legal challenge before it can continue.
The uncertainties surrounding Enbridge are likely reflected in its price performance, as the stock has gained 29.9% in the past year, trailing the industry’s composite stocks, which have surged 42.7%.
One-Year Price Chart
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.