Enbridge Inc. (TSX:ENB)(NYSE:ENB), the largest owner and operator of pipelines and one of the leading providers of contract crude oil storage in North America, announced strong fourth-quarter earnings results on the morning of February 19, but its stock has responded moving lower.
Its stock now sits more than 34% below its 52-week high of $66.14 reached back in April 2015, so let’s break down the report and its fundamentals to determine if we should consider using this weakness as a long-term buying opportunity, or if we should wait for an even better entry point in the trading sessions ahead.
A solid quarter of top- and bottom-line growth
Here’s a summary of Enbridge’s fourth-quarter earnings results compared with what analysts had projected and its results in the same period a year ago.
|Metric||Q4 2015 Actual||Q4 2015 Expected||Q4 2014 Actual|
|Adjusted Earnings Per Share||$0.58||$0.52||$0.49|
|Revenue||$8.91 billion||$9.02 billion||$8.80 billion|
Source: Financial Times
Enbridge’s adjusted earnings per share increased 18.4% and its revenue increased 1.3% compared with the fourth quarter of fiscal 2014.
Its very strong earnings-per-share growth can be attributed to adjusted net income increasing 20.8% to $494 million, which was driven entirely by 200% growth to $369 million in its Sponsored Investments segment, and this segment includes the company’s 89.2% economic interest in the Fund Group, its 35.7% economic interest in Enbridge Energy Partners, L.P., and its interests in two expansion projects held through Enbridge Energy, Limited Partnership.
Its slight revenue growth can be attributed to its transportation and other services revenues increasing 22.5% to $2.17 billion, but this growth was almost entirely offset by its commodity sales decreasing 1.9% to $6.07 billion and its gas distribution sales decreasing 19.5% to $672 million.
Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:
- Average deliveries increased 9.2% to 2.39 million barrels per day in its Lakehead System segment
- Average deliveries increased 8.6% to 2.24 million barrels per day in its Canadian Mainline segment
- Average deliveries increased 0.1% to 726,000 barrels per day in its Regional Oil Sands System segment
- Average throughput decreased 3% to 1.64 billion cubic feet per day in its Alliance Pipeline U.S. segment
- Average throughput decreased 4.3% to 1.48 billion cubic feet per day in its Alliance Pipeline Canada segment
- Gas distribution volumes decreased 9.3% to 117 billion cubic feet
- Available cash flow from operations increased 43.6% to $876 million
- Cash provided by operating activities increased 22.9% to $806 million
Should you buy Enbridge today?
It was a great quarter overall for Enbridge given the many headwinds facing the energy sector, so I do not think the market has reacted correctly by sending its shares lower. With this being said, I think the post-earnings weakness represents a great long-term buying opportunity for two primary reasons.
First, it’s undervalued. Enbridge’s stock trades at just 19.5 times fiscal 2015’s adjusted earnings per share of $2.20 and only 17.3 times fiscal 2016’s estimated earnings per share of $2.48, both of which are inexpensive given its five-year average price-to-earnings multiple of 64.4 and its estimated 10.9% long-term earnings growth rate.
Second, it has one of the best dividends in the market. Enbridge pays a quarterly dividend of $0.53 per share, or $2.12 per share annually, which gives its stock a high and safe yield of about 4.9%. Investors must also note that the company has raised its annual dividend payment for 20 consecutive years, and its 14% hike in December 2015 has it on pace for 2016 to mark the 21st consecutive year with an increase.
With all of the information provided above in mind, I think Foolish investors should strongly consider using the post-earnings weakness in Enbridge to begin scaling in to long-term positions.