Positive noteIncreasing Our Fair Value Estimate for Wide-Moat Enbridge; Stock Remains a Bargain
Analyst Note Joe Gemino, CPA, Senior Equity Analyst, 6 Jan 2021
We are increasing our fair value estimate for wide-moat Enbridge to $45 (CAD 58) from $43 (CAD 57), driven by our increased Mainline utilization forecasts resulting from the absence of the Keystone XL pipeline, which we no longer believe will be built. As a reminder, our fair value includes the probability that Line 3 is built and fully operational at 80% and that the pipeline is protected by its integrity replacement status at 20%. Despite a recent rally, the stock remains highly undervalued. Enbridge is trading in 4-star territory and remains one of our top picks in the Canadian energy sector. We think the market is mistaken to price Enbridge as if oil prices will remain weak forever. However, we do not expect the market's concerns will be fully addressed for some time, which can lead to volatile swings in the stock. We advise investors to stay the course while getting paid a handsome 7.9% dividend. In the end, we believe Enbridge's long and winding road will lead to 40% upside.