Enbridge (TSX:ENB) Could Be 13% Undervalued As KKR And Apollo Back Pipeline Expansion

Enbridge (TSX:ENB) has drawn fresh attention after partnering with KKR and Apollo to fund two large expansions on its Westcoast natural gas pipeline system, sharing project costs while keeping majority ownership and operational control.

At a share price of CA$69.76, Enbridge has seen modest positive momentum recently, with a 1-day share price return of 0.69% and a 7-day share price return of 0.32%, while the 30-day and 90-day share price returns are both down around 8%. Over a longer horizon the total shareholder return of 10.77% over 1 year and very large gains across 3 and 5 years suggest investors have been rewarded for staying invested. The recent pipeline partnership and Permian acquisition news sit against that backdrop of strong long term compounding.

Spot opportunities beyond Enbridge by scanning a curated group of infrastructure focused energy stocks with resilient balance sheets using the list of solid balance sheet and fundamentals (12 results).

Bulls see Enbridge using partner capital and recent Permian expansion to support long term compounding. Bears focus on revenue contraction and the size of new commitments. Which side does the current valuation support?

Most Popular Narrative: 13% Undervalued

Against Enbridge's last close at CA$69.76, the most followed narrative points to a fair value near CA$80.14, which implies a material valuation gap that hinges on long dated contracted assets and future earnings power.

The strategic build-out responding to surging electricity and data center needs, including utility-scale renewables, gas transmission expansions, and power generation projects, underpins multi-year earnings and cash flow growth as power demand accelerates through the decade.

Read the complete narrative.

Want to see what kind of revenue path and margin lift would need to materialise to support that fair value for Enbridge. The full narrative lays out a detailed earnings bridge, the implied valuation multiple and the assumptions on how the asset base and cash flows evolve from here. Curious which of those moving parts matters most for that CA$80.14 figure.

Result: Fair Value of CA$80.14 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, that fair value story for Enbridge could be challenged if regulatory setbacks slow projects, or if higher maintenance spending pressures earnings and future P/E assumptions.

Find out about the key risks to this Enbridge narrative.

Another View On Enbridge’s Valuation

The analyst narrative pegs Enbridge’s fair value near CA$80.14, which implies the stock is undervalued at CA$69.76. The SWS DCF model arrives at a far higher estimate of future cash flow value at CA$281.25, which suggests a very large implied gap. Which set of assumptions do you trust more?

Look into how the SWS DCF model arrives at its fair value.

Next Steps

If the mixed sentiment on Enbridge has you weighing both the upside and the risks, now is a good time to look through the key data points yourself and pressure test the assumptions that matter most for your portfolio, then review the full balance of potential upsides and concerns in the 2 key rewards and 2 important warning signs.

Looking for more investment ideas beyond Enbridge?

If Enbridge has sharpened your focus on quality, now is the moment to widen your opportunity set using targeted filters before the next move passes you by.

• Target potential mispriced opportunities by scanning a focused set of quality stocks using the 12 high quality undervalued stocks.
• Strengthen your income stream by checking companies that offer higher yields and more resilient payouts with the 3 dividend fortresses.
• Prioritise resilience by focusing on businesses with stronger finances and steadier fundamentals through the 11 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com