Enbridge Inc (ENB, Financial) experienced a daily loss of -5.11% and a 3-month loss of -10.26%. Despite these losses, the company's Earnings Per Share (EPS) stands at 1.4. This prompts the question, is the stock modestly undervalued? This article presents a comprehensive valuation analysis of Enbridge. Read on to discover more.
Company Introduction
Enbridge Inc (ENB, Financial) is a leading midstream company with extensive assets that transport hydrocarbons across the U.S. and Canada. The company's pipeline network consists of the Canadian Mainline system, regional oil sands pipelines, and natural gas pipelines. Enbridge also owns and operates a regulated natural gas utility and Canada's largest natural gas distribution company. Additionally, the firm has a small renewables portfolio, primarily focused on onshore and offshore wind projects.
With a current stock price of $33.49, Enbridge has a market cap of $68 billion. Comparatively, the GF Value, an estimation of the company's fair value, stands at $40.22. This comparison suggests that Enbridge (ENB, Financial) may be modestly undervalued.
Summarizing GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on the GuruFocus Value calculation, Enbridge (ENB, Financial) stock appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Enbridge's cash-to-debt ratio of 0.01 ranks worse than 95.2% of 1020 companies in the Oil & Gas industry. Overall, Enbridge's financial strength is 3 out of 10, indicating that it is poor.
Profitability and Growth
Investing in profitable companies carries less risk. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Enbridge has been profitable for 10 years over the past 10 years. During the past 12 months, the company had revenues of $35.20 billion and Earnings Per Share (EPS) of $1.4. Its operating margin of 19.48% is better than 66.01% of the companies in the Oil & Gas industry. Overall, Enbridge's profitability is fair.
One of the most important factors in the valuation of a company is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Enbridge is 2%, which ranks worse than 66.31% of the companies in the Oil & Gas industry. The 3-year average EBITDA growth is -4.1%, which ranks worse than 73.33% of the companies in the Oil & Gas industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. During the past 12 months, Enbridge's ROIC was 3.6 while its WACC came in at 6.52.
Conclusion
Based on this analysis, Enbridge (ENB, Financial) appears to be modestly undervalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 73.33% of 821 companies in the Oil & Gas industry. To learn more about Enbridge's stock, you can check out its 30-Year Financials here.
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