Enbridge Inc. (TSX:ENB)(NYSE:ENB) is finally seeing some bullishness return to its stock, as the company got some great news last week. The Line 3 replacement project received the approval it needed from the Minnesota Public Utilities Commission to move forward. While it could still be appealed, and permits will be required, it represents the last major hurdle for the project.
What is Line 3, and why does it need to be replaced?
The current pipeline spans 1,660 kilometres and starts in Hardisty, Alberta, and runs to Superior, Wisconsin, crossing over multiple states and provinces.
Its condition has been deteriorating, as the pipeline has been in place since the 60s and is in need of replacement to utilize its full capacity — while it was designed to transport 760,000 barrels a day, only about half of that is being realized as a result of safety concerns.
The new pipeline will make operations safer and help lessen the maintenance and ongoing repair needed to keep it operational.
Why there are still risks
The pipeline replacement was fiercely contested, particularly among aboriginal groups that didn’t want to see the project go ahead due to environmental concerns. It’s likely we’ll see some disruptions, as protesters will likely try to discourage Enbridge from going forward with the project.
Pipelines have been a hot topic in Canada, and although these issues relate mainly to the U.S. part of the project, it wouldn’t be unreasonable to see investors raise some doubts given the challenges that pipelines have faced here.
Stock seeing strong support from the news
Enbridge’s stock has struggled mightily over the past year, even as oil prices have climbed, and as the industry has continued its recovery. However, this latest news could change all of that, as it has injected the stock with a lot of optimism; the share price was up over 11% last week.
The stock is overdue for a bump in price given how high oil prices have risen in the past year, and with the Line 3 project looking like it will go through, it could be what investors have been waiting for to push the buy button on Enbridge’s stock, and that could give the share price a lot of room to grow from here.
The stock has long been undervalued, and this momentum could send the stock soaring to well over $50 a share.
Enbridge is a great buy
The company has been performing well over the past five quarters, as it has been able to grow its top line, while also producing a consistent profit during this time.
In its most recent quarter, sales were up over 14% from a year ago, and operating income rose more than 42%, although earnings were down as a result of a big impairment charge incurred during the period. As we continue to see more production in oil and gas, there will be more traffic on Enbridge’s pipelines, which could make those numbers even stronger.
Over the long term the stock is a solid buy, providing investors with a lot of stability and opportunity for growth.
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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.