Enbridge Analyst Sees Risks In Pipeline Projects, Downgrades Stock

Recent meetings with Enbridge Inc ENB management suggest heightened regulatory and project execution risks for the Line 3 (L3R) and Line 5 pipelines, according to Bank of America Merrill Lynch.

The Analyst

Dennis Coleman downgraded Enbridge from Buy to Neutral with an unchanged CA$49 ($37.35) price target. 

The Thesis

A meeting with Enbridge CEO Al Monaco in New York and with EVP and Chief Development Officer John Whelen in Calgary highlighted uncertainty around the timeline for L3R and the possibility of a prolonged litigation process for Line 5 (L5), Coleman said in the Tuesday downgrade note. (See his track record here.) 

The energy transportation giant projected CA$5-$6 billion in annual self-funding, which supports 5-7% growth in DCF per share in the longer term, the analyst said. While this is positive, more clarity is needed on the company’s “next leg of growth,” he said.

Enbridge’s larger projects continue to face headline risks that could limit near-term upside to the stock, Coleman said. 

The company does have growth opportunities, including connectivity; last-mile prospects; investments in LNG facilities; utility assets; and possible M&A, the analyst said.

"While we are encouraged by these growth prospects, we do not believe ENB’s overall growth potential is outsized compared to peers and believe it could face project capture risks due to sharp competition."

Price Action

Enbridge shares were down 0.33% at $36.05 at the time of publication Tuesday. 

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