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Is Enbridge Inc. (TSX:ENB) a Buy After Its Q2 Results?

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Enbridge Inc. (TSX:ENB)(NYSE:ENB) has been turning things around recently, with the stock up more than 15% in the past three months as it got a big boost from a strong Q1 performance. Last week, Enbridge released its Q2 results, and today I’ll take a closer look at how the company did and whether it’s still a good buy today.

Sales down slightly, but earnings rise

In Q2, Enbridge’s sales totaled $10.7 billion, which were down from the $11.1 billion that the company recorded this time last year. However, total earnings attributable to common shareholders was $1.07 billion, up from $919 million last year for an impressive increase of 16.5%.

What was behind the improvement?

Although the company did see its earnings rise from the prior year, a big reason for that was due to an income tax recovery of $97 million, compared to an expense of $293 million last year for a total swing of $390 million. If we look at pre-tax earnings, Enbridge came in at $1.2 billion for the quarter, which was down 20% from last year’s tally of $1.5 billion.

However, a big reason for the drop-off is undoubtedly the drop in sales. One way to gauge this is by looking at operating income. In this past quarter, operating income was 14.6% of the company’s top line compared to 15.1% a year ago.

Even if Enbridge had averaged the same percentage, its operating income still would have been down from the prior year, which certainly suggests that the drop in sales was a big driver behind the weaker results this quarter.

Although operating income wasn’t that impressive, if we look in terms of cash flow, Enbridge has done very well this year.

Big improvement in cash flow

Profits are important, but cash is ultimately what keeps a company in business and what will dictate its long-term success. For the six months ending June 30, Enbridge generated $6.5 billion in cash from its operating activities, which is well up from the $3.7 billion that it accumulated a year ago.

Outlook remains strong

Enbridge’s CEO, Al Monaco, was very happy with the quarter, stating in the earnings release that “The solid financial performance and diversity of growth from our recently acquired natural gas transmission and utility businesses, together with the continued realization of cost synergies, is clearly proving out the value of the Spectra Energy acquisition completed last year. At the mid-point of the year, we remain confident in achieving our financial guidance for 2018.”

As  the company continues to find more efficiencies, investors can expect to see greater profitability.

Does this make Enbridge a good buy today?

Year to date, Enbridge’s stock is still down 5%, and it didn’t get much of a boost from the earnings result despite the optimism expressed by the CEO. However, Enbridge’s stock has been undervalued for some time, and now with the Line 3 project no longer an uncertainty, there’s plenty of reason to think that the stock can finally gain some momentum.

The share price has been climbing recently, and while these results won’t do anything to light a fire under investors to load up on the stock, they also won’t turn investors bearish on the stock either. And these days, that’s just as important. Enbridge has a lot of potential and could be a great long-term buy.

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

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