A stock doesn’t get into value territory without having its share of headwinds. This is true for Enbridge (ENB), whose stock is now once again below $30. It is then up to the investor to determine if it is a value stock or a value trap. In this article, I show why I believe Enbridge the former rather than the latter, and what it makes an attractive investment at present; so let’s get started.
(Source: Company website)
A Look Into Enbridge
Enbridge is one of the largest energy companies in North America. It transports about 25% of crude oil produced in North America, and nearly 20% of the natural gas consumed in the U.S. It also operates North America’s third-largest natural gas utility by consumer count, and was an early investor in renewable energy, with a growing offshore wind portfolio. As such, its business is categorized into three segments: liquids pipelines, natural gas pipelines, and utilities and power. In 2019, Enbridge generated over $38B in total revenue.
As seen below, Enbridge’s large integrated network is connected to nearly all of the major energy plays in North America. It also has a joint venture with Enterprise Products Partners (EPD) to build an offshore export terminal in the Gulf of Mexico.
(Source: Company Earnings Presentation)
To be fair, Enbridge has had challenges, not least of which is from COVID, which has impacted energy demand worldwide. In addition, the transition to renewables and opposition to energy development present medium to long term challenges. The near term challenges were reflected in the decreased volumes on its mainline (liquids pipelines), which was 85% utilized during the second quarter.
In addition, the controversial Dakota Access Pipeline, in which Enbridge has a 28% stake, is at risk of a shutdown. The latest court papers reveal, however, that