Canaccord Downgrades Enbridge on Price Strength

Analyst Juan Plessis at Canaccord on Thursday, April 17, 2014, downgraded Enbridge Inc. ENB from Buy to Hold.

Shares of the company are up $0.24 or 0.51 percent to $47.11 per share. 

The company cited share price strength as a reason why it lowered its rating. Shares of Enbridge have leaped about 21 percent in the past six motnhs alone and are now within five percent of the firm's $54.00 price target.

The firm continued, “Enbridge continues to develop an attractive $36 billion enterprise-wide portfolio of commercially secured growth projects. The company's strong visible growth profile should allow it to deliver close to 12% annual EPS growth through 2017, likely with matching dividend increases. However, we believe the current share price reflects the company's strong growth profile. Note that Enbridge's return profile is tilted, meaning project returns improve over the first several years of commercial service. Our valuation could improve as projects near completion, new projects are announced and as throughput volumes improve.”

Below are some investment risks that Canaccord noted:

• ENB is subject to risks related to politicaland economic instability, currency volatility, market volatility, government regulations, foreign investment rules, security of assets, and environmental considerations;
• The operation of liquids pipelines are dependent upon the supply of and demand for crude oil and other liquid hydrocarbons;
• Earnings are subject to the actions of various regulators, actions of the regulators related to tariffs, tolls and facilities impact income from operations;
• Increased competition could arise from new feeder systems servicing the same geographic regions as the company's feeder pipelines and gas transportation and gas distribution areas;
• Pipeline leaks are an inherent risk of operations; and
• Commodity price volatility could impact the profitability of certain operations.

The firm has also said that its price target is derived from a number of factors, valuation metrics, earnings and dividend yields, and earnings multiples. Canaccord's target represents a 2015 price to earnings ratio multiple of 22x.