Enbridge Inc. ("Enbridge" or "the Company") is a leading energy infrastructure company in North America with about 17,000 employees that are mainly concentrated in Canada and the United States (U.S). The company primarily operates through five (5) segments: Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution & Storage, Renewable Power Generation, and Energy Services and each of these segments contribute 26.2%, 12.3%, 11.5%, 1.5% and 48.5%, respectively to total revenues.
Under its key business - Energy Services, the company transports energy through the most extensive and advanced crude and liquids pipeline system that spreads across 17,127 miles globally. The company transports 3 million barrels of crude every day which accounts for almost 63% of the Canadian crude oil production that are transported to the U.S. Enbridge generates stable fee-based revenues from its diversified network of midstream assets.
The following fundamentals and factors have been evaluated and summarized to make an investment recommendation regarding Enbridge:
Earnings Per Share (EPS) Information
|Current Quarter (Q1, 2021) EPS Estimate||0.55|
|Current Year (2021) EPS Estimate||2.05|
|EPS growth in 2020 vs Previous Year||-6.52%|
|EPS growth in Q4 2020 vs Previous Quarter||19.44%|
|Estimated Long-Term EPS Growth Rate||6.00%|
|YoY Change in Payout Ratio||0.27|
|Last Dividend Payout / Amount||11/02/2021 / $0.65|
Price to Earning Ratio (P/E ratio)
|Trailing 12 months||21.30|
Financial Summary (in millions of CAD)
|End Cash Position||490||490||676||637|
Key Financial Ratios as at 2020 FY
|Return on Assets||2.08|
|Return on Equity||5.28|
|Return of Total Capital||5.64|
|Return on Invested Capital||2.68|
|Total Debt to Equity||110.25|
Source: 2020 Enbridge Financials/ Utradea Analyst Estimates
Comments and Recommendation
Despite the fact that oil prices declined by a significant margin in 2020, Enbridge managed to generate a steady stream of cash flows regardless of the prevailing macroeconomic uncertainty - thus showcasing the resiliency of its business model and making it a top buy (especially for value and contrarian investors). The company's stock has an attractive forward yield of over 6%. It has increased dividend payouts for 26 consecutive years including a 10% hike in 2020 and a 3% hike in 2021. Tracking the enbridge stock in line with input from other analysts reveals a 12-month average target price of $52 which is 11% above the current trading price as at the time of writng this report. After accounting for its attractive dividend yield, annual returns will be closer to 17%.
Through 2023, the Company's management estimates that the Enbridge stock will grow its distributable cash flow per share by 5-7% per year. This should lead to healthy dividend increases of approximately 3-5% in the period. Therefore, ignoring any potential valuation expansion, Enbridge can deliver annualized returns of 10-12% through 2023 and these returns will primarily come from its compelling dividend yield of 7%.