Credit Suisse has downgraded shares of Enbridge (ENB.TO)(ENB) ahead of the Canadian pipeline giant's financial results set for release before the opening bell on Friday.
In a note to clients on Wednesday, analyst Andrew Kuske cites a trio of headwinds for the Calgary-based midstream company as he cut his rating to "underperform" from "neutral."
Kuske warns the start of the Trans Mountain Expansion Pipeline, expected in the fourth quarter of 2023, may cause "volumetric offloading" impacting Enbridge. The federal government-owned project will add more than half a million barrels per day of pipeline exit capacity.
Kuske adds that Enbridge shares are pricey compared to rivals, noting an 18.6 times price-to-earnings ratio as of Jan. 27, compared to lower multiples for AltaGas (ALA.TO), Gibson Energy (GEI.TO), Keyera (KEY.TO), Pembina Pipeline (PPL.TO), and Tidewater Midstream and Infrastructure (TWM.TO).
Thirdly, the analyst warns of "fading returns" for Enbridge's massive liquids transportation system "given supply-demand dynamics, and the lack of future egress options."
Toronto-listed Enbridge shares slipped 2.35 per cent to $53.35 as at 11:04 a.m. ET on Wednesday.
"There are clear positives associated with the franchise. However, better relative value along with overall fundamental and thematic appeal exists in the regional exposed stocks," Kuske wrote.
"We highlight our 'outperform' rated stocks in the Canadian energy infrastructure sub-sector: AltaGas, Keyera, and Tidewater Midstream and Infrastructure."
Enbridge is set to release fourth-quarter and full-year financial results before markets open on Feb. 10.