Will Enbridge Inc. Stock Skyrocket After a Strong Q1?

Enbridge Inc (TSX:ENB)(NYSE:ENB) had another strong quarter in Q1, but it continues to battle rising costs.

| More on:

Enbridge Inc. (TSX:ENB)(NYSE:ENB) is starting to show signs of life again as its stock got a boost from Q1 earnings.  In its results released last week, the pipeline giant saw its revenues rise 14% from last year. However, earnings were down more than 46% year-over-year as impairment charges of over $1 billion brought down the company’s profits.

As a result of the otherwise strong quarter, however, the stock was up 6% last week as it finally got up to over $43 a share. It could finally be what the stock needs to get going again, as it has been down 20% over the past 12 months. Even rising oil prices have not been able to help Enbridge, so this is a good indication that the stock might finally be rising from the abyss.

Let’s take a deeper look at the stock to see whether it might be a good buy today in light of these results.

All operating costs up from last year

While Enbridge saw strong sales growth from a year ago, the problem is that expenses outpaced its top-line growth. It wasn’t only impairment costs that brought the results down, but every major expense category saw an increase from last year as well. In total, operating expenses were up 21% from a year ago, although without the write-downs, the increase would be just 10%.

Enbridge did, however, see other costs rise, including net foreign currency losses, which increased $180 million; interest expenses were also up $170 million from last year.

Ultimately, as long as we don’t see more asset write-downs in future quarters, then (based on the improving conditions in the oil and gas industry and Enbridge showing strong growth), investors can expect to see stronger profits than that of Q1. However, expenses shouldn’t be ignored as, we see similar problems in Q4, where rising operating costs hurt an otherwise strong quarter where revenues increased 28%.

Strong, steady progress expected to continue

In its earnings release, Enbridge stated that it was on track for the guidance set out for the company in 2018. However, if oil prices continue to rise, then investors will likely see even stronger results. The company also noted that synergies gained from the deal with Spectra Energy have begun to be realized, which could further accelerate Enbridge’s growth.

Questions remain around Line 3 Replacement project

The big question mark for Enbridge is will happen with its Line 3 Replacement project, which may go through a different route from the company’s preferred option; that is not practical for the pipeline company, and might impact the feasibility of the project. The company continues to try to justify its preferred solution, but there’s no guarantee that it will obtain the necessary approval for it to go through as planned.

A bad result here could see the bears come back out in full force yet again.

Is the stock a buy today?

Enbridge is a great dividend stock to own, and it has been overdue for a recovery in price. Investors could see significant returns from owning the stock, especially now that it’s on an upward trajectory.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

More on Energy Stocks

The sun sets behind a high voltage telecom tower.
Energy Stocks

2 Utilities Stocks With Sought-After Stability

Here's why Fortis and Hydro One are two top utilities stocks long-term investors may want to consider right now.

Read more »

Choose a path
Energy Stocks

Algonquin Power Stock: A Smart Investment or a Value Trap?

Does APQ stock have more surprises for investors like last year?

Read more »

Oil pumps against sunset
Energy Stocks

Canadian Energy Stocks: Here’s Your Best Bet in February 2023

Want to bet on energy stocks in 2023? Try this Canadian stock for solid income and growth.

Read more »

a person watches a downward arrow crash through the floor
Energy Stocks

Why ARC Resources Stock Plunged 17% in January 2023

Should you buy ARC Resources stock now?

Read more »

oil tank at night
Energy Stocks

Is CNQ Stock a Buy in February 2023?

Canadian Natural Resources stock has many things going for it, including its strong dividend history, as well as cash flow…

Read more »

tsx today
Energy Stocks

TSX Today: What to Watch for in Stocks on Thursday, February 2

More corporate earnings reports could give further direction to TSX stocks today.

Read more »

oil and gas pipeline
Energy Stocks

Better Buy: Suncor Stock or Enbridge?

Amid the favourable environment, would you be better off investing in ENB or SU energy stock right now?

Read more »

Electric car being charged
Energy Stocks

Your Play to Get in on the 2023 EV Boom

Here's why Magna International may be the best way for Canadian investors to ride the EV boom.

Read more »