Enbridge (TSX:ENB) and Tesla (NASDAQ:TSLA) are large-cap companies that have generated massive wealth for long-term shareholders. While Enbridge has a market cap of $103 billion, Tesla is a much larger company with a market cap of $553 billion.
Let’s see if there is a chance for Enbridge stock to be worth more than Tesla by 2026.
Tesla stock is under pressure
Shares of Tesla are down 58% from all-time highs as the electric vehicle (EV) manufacturer continues to wrestle with rising competition, a sluggish macro environment, and slower consumer spending. Tesla is among the largest EV manufacturers globally and it shipped 1.8 million cars in 2023, up from 1.3 million in 2022 and 936,000 in 2021. However, in the last few quarters, Tesla has lowered vehicle prices to boost demand, thereby impacting its profit margins and cash flow.
Lower prices have led to a slowing of top-line growth and an erosion of profit margins. While Tesla’s sales rose by 19% to US$97 billion in 2023, it decelerated to just 3% in the December quarter. Moreover, its gross margins narrowed to 18.2% in 2023 from 25.6% in 2022, while operating income declined by 35% year over year.
Analysts expect Tesla’s adjusted earnings per share to narrow from US$3.12 in 2023 to US$2.99 per share in 2024. So, the stock is priced at 60 times forward earnings, which is quite steep. Wall Street remains bullish on Tesla stock and expects shares to surge over 15% in the next 12 months.
Is Enbridge stock a good buy right now?
Armed with a wide economic moat, Enbridge is an energy infrastructure behemoth that transports commodities across North America. It charges a fee for companies that use its assets, resulting in stable cash flows across market cycles. Additionally, it owns a natural gas utility business and renewable energy assets, diversifying its revenue base.
Enbridge pays shareholders an annual dividend of $3.66 per share, translating to a forward yield of 7.6%. These payouts have risen by 10% annually in the last 29 years, showcasing the resiliency of the company’s cash flow.
Enbridge has an investment-grade balance sheet and a sustainable dividend payout ratio, which provides it with the flexibility to lower its balance sheet debt and target accretive acquisitions. Moreover, Enbridge continues to reinvest heavily in growth projects, driving future cash flows and dividends higher.
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In the last 20 years, the pipeline and utility company has returned 11.2% annually to shareholders, outpacing the S&P 500 index and its utility and midstream peers. Priced at 16 times forward earnings, Enbridge stock is not too expensive, given its attractive dividend yield and a widening earnings base. The stock trades at a discount of 12% compared to consensus price targets.
The Foolish takeaway
Both Enbridge and Tesla are well-positioned to deliver market-beating returns to shareholders once market sentiment improves and interest rates move lower. However, it would be impossible for Enbridge to gain over 400% and be worth more than Tesla by 2026. The only way Enbridge can surpass Tesla in valuation is if shares of the EV giant slump 80% from current levels, which again is unlikely.
