Goldman Downgrades Enbridge Energy Partners To Sell, Enbridge Inc To Neutral

Goldman has downgraded Enbridge Energy Partners, L.P. EEP to Sell and Enbridge Inc (USA) ENB to Neutral due to project delays, more challenging fundamentals in the Bakken and oil sands regions, and increasingly strained financials.

"From an operational standpoint, we note regulatory challenges on its two major projects (Sandpiper/Line 3 replacement), growing competition in the Bakken, macro uncertainty on oil sands and Bakken volume growth," analyst Theodore Durbin wrote in a note.

Durbin also trimmed Enbridge Energy Partners price target to $20 from $21.

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On the financials front, the analyst noted high leverage of EEP (average GAAP Debt/EBITDA 4.6x through 2018), low coverage (avg. 0.9x through 2018) and "likely limited dropdown upside from parent ENB," given the unattractive relative valuation between the two.

Durbin said Enbridge Inc trades at a relatively high 2016E EV/EBITDA multiple of 15.1x, higher than Enbridge Energy's 9.0x/10.2x pre-GP/post-GP.

Goldman downgraded Enbridge to Neutral from Buy, and cut price target by $2 to $42 on lower estimates. Apart from valuation, the downgrade also stems from the fundamental challenges at Enbridge Energy (its MLP), and Enbridge Inc's relatively high leverage (>6.0x consolidated 2016-2018 Debt/EBITDA).

"We see relatively flat total return upside to our new target price," Durbin continued.

Shares of Enbridge Energy Partners closed Tuesday's regular trading session at $24.89, while Enbridge closed at $41.87.

At time of writing, Enbridge Inc was trading down 0.88 percent at $41.50, while Enbridge Energy was down 2.25 percent at $24.32.

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