Is Enbridge Stock Too Cheap to Pass Up Now?

Key Points

• Enbridge is one of the world's largest pipeline operators, partaking in transporting and storing crude oil, natural gas and liquids across the U.S. and Canada.
• Enbridge announced a deal to purchase three U.S. natural gas distribution utilities from Dominion Energy for $14 billion.
• Enbridge is a dividend aristocrat trading down 14% YTD at 15.9X forward earnings with a 7.84% annual dividend yield.

Based out of Canada, Enbridge Inc. NYSE: ENB operates the world's longest crude oil and liquids transportation system, totaling 17,809 miles of active pipeline. While it also has core businesses in the natural gas pipelines, gas utilities and storage and renewable energy segment, it still collects 57% of its total revenues from its liquids pipeline business.

On Sept. 5, 2023, Enbridge announced a deal with Dominion Energy Inc. NYSE: D to purchase three U.S. utilities from it for $14 billion, comprised of $9.4 billion in cash and $4.6 billion in assumption of debt. Shares fell 7% in the aftermarket, making a new 52-week low on the announcement. Investors may consider the shares too cheap to pass up, with 15.9X forward earnings and a hefty 7.84% annual dividend yield.

The Energy Transportation Business

Enbridge is a major player in the energy business in the U.S. It operates the longest pipeline in the world, with 9,299 miles in the U.S. and 8,510 miles of pipeline in Canada for a total of 17,809 miles in North America. It also gets the second largest chunk of revenues at 29% from its gas transmission and midstream business, transporting 4.3 billion barrels of crude oil in 2022.

Nearly 30% of the crude oil produced in the U.S. and 40% of the crude oil imported by the U.S. is transported through Enbridge's pipelines. The company generated over $39 billion in revenues in 2022, estimated to drop to around $34.85 billion in 2023.

Enbridge stock is a dividend aristocrat paying dividends for more than 67 years while raising dividends 28 times consecutively. It also has a 4.38% short interest, which likely rose with the recent announcement.

The New King of U.S. Natural Gas

Adding three natural gas distribution U.S. utilities will elevate Enbridge to be the largest provider of natural gas in the United States. In fact, Enbridge will be transporting over 20% of the natural gas consumed in the U.S. It further helps the company diversify its energy mix.

As the population grows, the company will be able to accommodate consumer choices in sustainability. Sustainability and affordability are the key factors driving natural gas demand. The acquisition will expand its footprint in North Carolina, Ohio and Utah.

Natural Gas and Methane Controversy

Natural gas is gaining more controversy as it still releases methane and carbon dioxide, just less than from burning fossil fuels. New York has led the controversy, being the first state to ban natural gas stoves and heating in most new buildings and homes in 2026. There is growing controversy about the sustainability of natural gas, which burns cleaner than fossil fuel but also releases methane, which purportedly has a global warming effect that’s 21 times more than carbon dioxide over a century.

However, it dissipates quicker than carbon dioxide. Natural gas is comprised of 70% to 90% methane. Methane is considered a strong greenhouse gas.

Analyst Actions

Following the deal announcement, Wells Fargo downgraded shares to Equal Weight from Overweight. Analyst Praneeth Satish commented that 2024 will be a transition year with high leverage and funding gap headwinds despite paying a reasonable asset price. He lowered the price target from $42.51 (C$58) to $36.65 (C$50). BMO Markets resumed coverage of Enbridge with a Market Perform rating.

Enbridge analyst ratings and price targets are at MarketBeat.

 

Weekly Ascending Triangle

ENB has been in a weekly descending triangle pattern since peaking at $43.91 in June 2022. Shares fell to a low of $32.76 in October 2022. ENB formed a weekly market structure (MSL) breakout through the $35.63 trigger to rally to $39.96 before slipping again. Each pullback and bounce peaked at a lower high, forming the diagonal descending trendline of the triangle on course to meet the horizontal flat-bottom trendline.

While making lower highs, the acquisition deal announcement caused shares to collapse toward the flat-bottom support before shares recovered to the weekly 200-period moving average (M.A.) at $33.39. The weekly relative strength index (RSI) starts falling again through the 40-band. Pullback supports are at $33.39 weekly, 200-period M.A., $32.76 triangle flat-bottom trendline, $31.46 and $30.53.