Enbridge (TSX:ENB) is among the largest companies in Canada. Trading at a market cap of $95 billion and an enterprise value of $179 billion, Enbridge is part of the energy sector. A diversified energy infrastructure company, Enbridge transports around 30% of the crude oil produced in North America and 20% of the natural gas consumed in the U.S.
It operates the third-largest natural gas utility in North America in terms of consumer count and is an early investor in clean energy with a rapidly expanding offshore wind portfolio.
Enbridge’s assets are strategically positioned and are connected to key low-cost supply basins and demand-pull markets. It currently provides sustainable energy to four million utility customers. At the same time, the company’s acquisition of Tri Global Energy should allow Enbridge to enhance its renewable development platform and drive growth in the upcoming decade.
Is Enbridge a good stock to buy right now?
Enbridge recently announced a big-ticket acquisition of three gas utilities from Dominion Energy for $19 billion. The deal will create the largest gas utility platform in North America as it delivers 9.3 bcf/d (billion cubic feet/day) to seven million customers.
Enbridge expects the acquisition to accelerate the scale of its existing low-risk utility model and improve the quality of its cash flows. It should also support Enbridge’s long-term dividend-growth profile.
For instance, Enbridge’s cash flows are tied to long-term contracts that are indexed to inflation, shielding it from fluctuations in commodity prices. This business model allows Enbridge to generate predictable cash flows across business cycles and pay shareholders an annual dividend of $3.55 per share. Despite the cyclicality associated with the energy sector, ENB stock has raised dividends by 10% annually in the last 28 years, which is exceptional.
Right now, Enbridge generates 57% of its EBITDA (earnings before interest, tax, depreciation, and amortization) from the liquids pipelines business, followed by 28% from gas transmission, 12% from gas distribution, and 3% from renewable energy. Following the acquisition, gas distribution should account for 22% of EBITDA for Enbridge, allowing the company to generate 50% of EBITDA from natural gas and renewables.
Basically, the deal enhances Enbridge’s commercial profile with increased regulated cash flow. Around 98% of EBITDA will be derived from low-risk businesses, making Enbridge the only major pipeline and midstream company with regulated utility cash flow.
What is the target price for ENB stock?
Enbridge’s utility-like approach and disciplined investments in energy infrastructure have translated to robust shareholder returns. Between 2008 and 2022, Enbridge stock has returned 11.4% annually, higher than the 8.9% returns delivered by the S&P 500 index.
But a challenging macro environment in 2023 has dragged ENB stock lower by 32.5% from all-time highs, increasing its dividend yield to a tasty 8%.
Enbridge has increased its EBITDA from $2.5 billion in 2008 to $15.5 billion in 2022. It expects to end 2023 with EBITDA of between $15.9 billion and $16.5 billion. A widening bottom line has allowed Enbridge to increase dividends from $0.66 per share in 2008 to $3.55 per share today.
Priced at 15.6 times forward earnings, ENB stock is quite cheap and trades at a discount of 23% to consensus price target estimates.
