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Enbridge's (EEP) Diversified Business Model to Drive Earnings - Analyst Blog

Zacks Equity Research

On Jul 6, 2015, we issued an updated research report on Enbridge Energy Partners LP EEP, which is a master limited partnership (MLP) engaged in the gathering, processing and transmission of natural gas and crude oil.

The partnership’s focus on fee-based and diversified businesses has enabled it to dilute its business risks, as well as provide a stable and steadily growing earnings profile. We remain positive on Enbridge given its increased exposure to the Bakken Shale, the Haynesville Shale and Granite Wash. We believe these growth prospects have not been fairly captured by its current yield of 6.73%.

Enbridge’s Lakehead system transfers over 60% of the Canadian oil output into the U.S. This unique position helps the partnership to capitalize on the growing Canadian oil sands production. Moreover, Enbridge holds 35% share in the Texas Express pipeline and the Ajax project. This increases the partnership’s natural gas liquids handling and raises the prospect for significant growth.

Enbridge’s Liquids segment is also poised to benefit from increasing production in the Bakken Shale and Canadian Oil Sands regions, as well as higher revenues from Alberta Clipper. The partnership plans to increase crude takeaway capacity in the Bakken and to enhance the shipping of crude eastward to the upper Midwest and Canada refineries.
However, Enbridge’s midstream natural gas business is sensitive to changes in natural gas supply, demand fundamentals and commodity cycles associated with gas processing margins. Furthermore, with the expansion of its natural gas gathering and processing business, Enbridge has increased its risk exposure to commodity prices.
A decline in natural gas processing margins or a drop in domestic oil, gas drilling and/or end market demand is likely to lower the growth rate and adversely affect distributable cash flow of the partnership.
Enbridge could also be affected by a number of global macro issues, which include sovereign debt risks, defaults on sovereign credits, and changes in U.S. monetary and fiscal as well as tax policies. Additionally, an economic slowdown could impact the demand and price of crude oil, which in turn, could hurt Enterprise's margins in its NGL, natural gas and other businesses.

Key Picks in the Sector

Enbridge Energy Partners has a Zacks Rank #1 (Strong Buy). Other stocks from the same space that warrant a look are Transmontaigne Partners L.P. TLP, EQT Midstream Partners L.P. EQM and LRR Energy, L.P. LRE. All these stocks sport a Zacks Rank #1 (Strong Buy).

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TRANSMONTN PTNR (TLP): Free Stock Analysis Report
ENBRIDGE EGY PT (EEP): Free Stock Analysis Report
EQT MIDSTRM PTR (EQM): Free Stock Analysis Report
LRR ENERGY LP (LRE): Free Stock Analysis Report
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