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Enbridge (ENB) Up 4.6% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Enbridge (ENB). Shares have added about 4.6% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Enbridge due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Enbridge Beats Earnings and Revenue Estimates in Q1

Enbridgereported first-quarter 2020 earnings per share of 62 cents, beating the Zacks Consensus Estimate of 51 cents and increasing from the year-ago quarter’s profit of 61 cents. The outperformances were owing to higher contributions from Mainline System. This was partly offset by lower contributions from gas distribution & storage business.

Total revenues in the quarter declined 7.4% year over year to $8,957 million. However, the top line beat the Zacks Consensus Estimate of $8,517 million.

Distributable Cash Flow (DCF)

In first-quarter 2020, the company reported DCF of C$2,706 million compared with C$2,758 million a year ago.

Segment Analysis

Enbridge conducts business through five segments — Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewable Power Generation and Energy Services.

Liquids Pipelines: The segment’s adjusted earnings before interest, income taxes, and depreciation and amortization (EBITDA) amounted to C$1,919 million, up from C$1,729 million in the year-earlier quarter. Higher contributions from the Mainline System and Gulf Coast & Mid-Continent System primarily led to the outperformance.

Gas Transmission and Midstream: The segment’s adjusted earnings totaled C$1,097 million, up from C$1,040 million in first-quarter 2019. Higher contributions from the US Gas Transmission business drove the upside.

Gas Distribution and Storage: The unit generated profit of C$609 million compared with C$693 million in the prior-year quarter. Warmer weather conditions hurt the segment’s profit.

Renewable Power Generation: The segment recorded earnings of C$118 million, down from C$123 million in the prior-year quarter. A decline in wind resources at Canadian wind facilities primarily led to the segment’s underperformance.

Energy Services: The segment generated a loss of C$13 million against a profit of only C$176 million in first-quarter 2019.

Balance Sheet

At the end of first-quarter 2020, the company reported total debt of C$68,627 million, and cash and cash equivalents of C$799 million.  Its debt-to-capitalization ratio was almost 0.50.

Guidance

For 2020, the company has reaffirmed its guidance for DCF per share at the band of C$4.50 to C$4.80. Notably, in the wake of coronavirus pandemic, Enbridge decided on the deferral of roughly C$1 billion of planned secured growth capital budget for 2020. Also, the disruption in energy business owing to the virus outbreak led the midstream service provider to slash operating expense expectation for 2020 by C$300 million.

The company added that the pandemic, which is denting global energy demand, resulted in a throughput cut of 400,000 barrels per day (Bbl/D) from the Mainline pipeline system in April. The firm expects throughput to reduce by an average of 400,000 to 600,000 Bbl/D in the June quarter of 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 6.31% due to these changes.

VGM Scores

At this time, Enbridge has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Enbridge has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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