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Here's Why Hold Strategy is Apt for Enbridge (ENB) Stock Now

·3 min read

Enbridge Inc. ENB is likely to see earnings growth of 8.7% and 5.5% for 2022 and 2023, respectively. In the past year, the stock has jumped 1.2% against the 4.5% decline of the composite stocks belonging to the industry.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Factors Favoring the Stock

Currently carrying a Zacks Rank #3 (Hold), Enbridge has an extensive network of pipeline assets responsible for transporting roughly 30% of North American crude oil production. The midstream properties are also responsible for carrying as much as 20% of the natural gas Americans consume. In Ontario and Quebec, the company is dedicatedly serving 3.9 million retail customers through its Gas Distribution and Storage operations.

With a significant portion of its assets being contracted by shippers for the long term, its business model is less exposed to volatility in oil and gas prices. Underpinned by long-term contracts, Enbridge’s business model also has considerably lower volume risk exposure.

Enbridge has estimated roughly C$10-billion secured growth capital projects to be placed into service through 2025. In this year, the midstream player expects C$4 billion in secured growth capital projects to be in service. Thus, Enbridge is securing more cashflows in the coming years.

Risks

Compared to composite stocks belonging to the industry, Enbridge’s balance sheet has more debt exposure.

Line 5 is a critical infrastructure responsible for supplying 55% of the propane demand in Michigan. A few years back, the company entered into agreements with the state to construct a tunnel that would encase a replacement section of Line 5 oil pipeline to enhance safety. However, repeated protests for shutting down the line on safety concerns could affect Enbridge.

Stocks to Consider

A few better-ranked players in the energy space are Antero Resources (AR), Continental Resources, Inc. CLR and Cheniere Energy, Inc. LNG. While Cheniere Energy carries a Zacks Rank #2 (Buy), Antero and Continental sport a Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Antero Resources is a leading upstream energy player with a strong presence in the gas-rich prolific Appalachian Basin in West Virginia and Ohio. In the past 60 days, Antero Resources has witnessed upward earnings estimate revisions for 2022 and 2023.

The substantial exposure to improving commodity price is a huge positive for Antero Resources.

Improving oil prices are definitely a boon for Continental’s upstream operations since the company is a leading producer of crude in the United States. Notably, Continental has a strong presence in the core of a prolific oil field – the Bakken play of North Dakota and Montana. Moreover, CLR has a strong focus on cost-reduction initiatives, and it is well known that the upstream player is a low-cost, high-margin producer of oil.

Prospects for Cheniere Energy looks bright since the firm is a leading producer and exporter of liquefied natural gas (LNG) in the domestic market. It is a clear fact that Cheniere Energy is well-positioned to capitalize on the improving demand for LNG.

For 2022, Cheniere Energy is likely to see earnings growth of more than 260%.


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