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.
To view this article, become a Morningstar Basic member.
Joe Gemino does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.