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Canadian Pipeline Operator Enbridge Upgrades 2021 Core Earnings, Dividend Forecasts

Enbridge, a Canadian multinational energy transportation company, upgraded their next year core earnings and annual dividend forecasts, largely driven by volume recoveries in its Liquids Mainline System and downstream pipelines.

Canadian pipeline operator forecasts 2021 EBITDA between C$13.9 billion to C$14.3 billion, higher than this year’s forecast of nearly C$13.7 billion, and distributable cash flow per share of between $4.70 to $5.00 per share.

Enbridge said its quarterly dividend for 2021 will be increased from $0.81 to $0.835 per share, commencing with the dividend payable on March 1, 2021, to shareholders of record on February 12, 2021.

Enbridge’s shares closed 0.3% lower at $33.28 on Monday; the stock is down over 15% so far this year.

Executive Comments

“In the near-term, our Plan continues to prioritize the execution of our $16 billion secured growth program, of which approximately $6 billion has already been spent, and are expected to deliver approximately $2 billion of incremental EBITDA from 2021 to 2023,” noted Al Monaco, President and CEO of Enbridge.

“Over the medium and longer-term, Enbridge’s diversified asset base, integrated infrastructure networks and extensive reach provide us with many opportunities to invest our expected post- Line 3 annual investment capacity of $5-6 billion. We will, however, stay true to our investment discipline, deploy capital to the best uses, and stick to what we know best,” Monaco added.

Enbridge Stock Price Forecast

Ten equity analysts forecast the average price in 12 months at $40.40 with a high forecast of $46.11 and a low forecast of $35.95. The average price target represents a 21.39% increase from the last price of $33.28. All those 10 analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of C$54 with a high of C$68 under a bull-case scenario and C$31 under the worst-case scenario. The firm currently has an “Overweight” rating on the energy transportation company’s stock. Wells Fargo raised the price target to C$46 from C$44, raises to overweight rating from equal weight.

Several other analysts have also upgraded their stock outlook. Enbridge has been given a C$50 target price by equities researchers at Tudor Pickering & Holt. The firm currently has a “buy” rating on the stock. TD Securities decreased their price target to C$53 from C$57 and set a “buy” rating for the company. National Bank Financial decreased their price target to C$55 from C$56 and set an “outperform” rating. Royal Bank of Canada reduced their target price to C$52 from C$58 and set an “outperform” rating.

Analyst Comments

“One of the most utility-like business models: minimal commodity and volume exposure, highly stable and diverse set of crude oil and natural gas pipelines, and a modestly growing utility business. Stable, self-funding equity model and potential positive cash flow generation create capacity for organic reinvestment, long-lived projects, and flexibility for potential share repurchases,” said Stephen Byrd, equity analyst at Morgan Stanley.

“Relatively limited variability to current operating environment positions ENB as a defensive alternative,” Byrd added.

Upside and Downside Risks

Upside Risks: 1) Regulatory approvals for Line 3/Line 5 projects. 2) Regulatory approval/contracting of the Mainline system to replace the Competitive Toll Settlement. 3) Execution on Mainline optimization initiatives and downstream expansions- highlighted by Morgan Stanley.

Downside Risks: 1) Legal challenges stop Line 3/Line 5 projects from moving forward. 2) Risk on producer-facing Northeast gas pipeline contracts. 3) Growth slows as new projects prove difficult to source.