Will Pipeline Projects Take a Toll on Enbridge?
The wide-moat firm remains one of our top picks in the energy sector despite uncertainty associated with future mainline utilization.
Joe Gemino: Best idea and wide-moat Enbridge remains one of our top picks in the energy sector, but the stock has underperformed over the past 18 months. The stock declined 16% last year, and even though is up 14% year to date, its lagging its major peer, TransCanada. We think the market is underestimating cash flows due to the uncertainty associated with future mainline utilization and the Line 3 replacement project.
We continue to anticipate that all three major takeaway pipelines from Canada will be built by the end of 2022. Naturally, there will be some underutilization of Enbridge's mainline system, but with the breakthroughs in oil sands extraction technology, we expect Canada's supply to grow by 1.3 million barrels of oil per day in the next decade. Accordingly, we don't expect the mainline underutilization to last long, as we expect it to operate near full capacity as supply ramps up to our forecast levels by 2025--whereas the market expects a lower long-term utilization rate of the mainline system.
Joe Gemino does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.