Enbridge: Potential Home Run Despite Short-Term Metrics

By: Shawn Arshad @ Seeking Alpha

 Published: Jan. 24, 2014 4:04 PM ET

The Oil & Gas Midstream Industry has grown over 25% on total returns in the past five years. The geographic nature of Canada gives it a financial leverage over most of the world in crude oil production and transportation. According to IHS Cera, by 2035 the Canadian Oil Sands have the capability to provide North America with 7 million barrels per day (bpd). The United States and Canada have the largest energy-trading relationship in history. Canada supplies more than 20% of US energy import demand, with Alberta alone accounting for 7% of the crude oil transported to US refineries. Enbridge, Inc.’s (NYSE:ENB) leading position in Alberta should help it establish a successful moat in the Oil & Gas Midstream Industry during the next three years.

Financials for ENB from 2011-2014

Changes Between 2011-TTM ENB
Operating Income $118 Million
Revenue $13 Billion
Net Income $30 Million
EPS -$0.23
Total Assets $18.8 Billion
Total Liabilities $9.8 Billion
Stockholders’ Equity $4.3 Billion
Free Cash Flow -$4.5 Billion

Valuation Relative to Industry

Valuation ENB Industry Average
P/E TTM 44 35
P/B 5 3
P/S TTM 1 1
Operating Margin % TTM 6 9
Net Margin % TTM 3 4
ROE TTM 12 9
Debt/Equity 2 1

Since 2011, ENB has seen a slight decrease in EPS. Ironically, this decrease came with increased dividends. Current dividend payments cannot be maintained based on current earnings and future projects. ENB has a PEG of 4.2 and a PE of 43. The industry’s position on PEG and PE are half that of ENB’s. These ratios indicate that ENB is currently over-priced. As the Oil, Gas & Consumable Fuels industry was able to improve its earnings during the last fiscal quarter, ENB was not; despite its increase in assets and ROE TTM.

The financial outlook is not entirely bad, however. Although ENB’s debt to equity ratio is 56%, its operating profits are 4.5 times greater than its interest payments.



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Disclaimer: Shawn Arshad is not certified to give financial advice. Although well researched, please do your own research prior to investing. Shawn is not responsible for any actions one makes based on the information he provides.


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