Enbridge Inc.’s Adjusted Net Income Jumped 54% in Q2: Should You Buy Now?

Enbridge Inc. (TSX:ENB)(NYSE:ENB) released second-quarter earnings on July 31, and its stock reacted by rising over 1%. Is it headed even higher?

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Enbridge Inc. (TSX:ENB)(NYSE:ENB), the largest owner and operator of pipelines in North America, announced second-quarter earnings results before the market opened on July 31, and its stock responded by rising over 1% in the trading session that followed. Let’s take a closer look at the results to determine if we should consider establishing long-term positions today, or if we should wait for a better entry point in the trading sessions ahead.

A quarter of mixed growth

Here’s a summary of Enbridge’s second-quarter earnings results compared with its results in the same period a year ago.

Metric Q2 2015 Q2 2014
Adjusted Earnings Per Share $0.60 $0.40
Revenue $8.63 billion $10.03 billion

Source: Enbridge Inc.

Enbridge’s adjusted earnings per share increased 50% and its revenue decreased 13.9% compared with the second quarter of fiscal 2014. The company’s very strong earnings-per-share growth can be attributed to its adjusted net income increasing 54% to $505 million, driven by growth in all four of its major segments, including 9.1% growth to $240 million in its liquids pipelines segment and 44.8% growth to $139 million in its sponsored investments segment.

Its double-digit percentage drop in revenue can be attributed to the decline in commodity prices over the last year, which led to its commodity sales decreasing 20.2% to $5.98 billion and its gas distribution sales decreasing 11.7% to $528 million.

Here’s a quick breakdown of 10 other notable statistics from the report compared with the year-ago period:

  1. Average deliveries increased 5.3% to 2.07 million barrels per day in its Canadian mainline segment
  2. Average deliveries increased 15.8% to 799,000 barrels per day in its regional oil sands system segment
  3. Average deliveries decreased 21.9% to 153,000 barrels per day in its Spearhead pipeline segment
  4. Gas distribution volumes decreased 10.5% to 68 billion cubic feet
  5. Number of active customers increased 1.4% to 2,099 in its gas distribution segment
  6. Average throughput volume increased 2.9% to 1.37 billion cubic feet per day in its Vector pipeline segment
  7. Average throughput volume decreased 11.9% to 1.4 billion cubic feet per day in its Enbridge offshore pipelines segment
  8. Cash provided by operating activities increased 66.3% to $1.35 billion
  9. Available cash flow from operations increased 56.6% to $808 million
  10. Paid out a quarterly dividend of $0.465 per share for a total cost of $399 million, compared with a quarterly dividend of $0.35 per share for a total cost of $293 million in the year-ago period

Does Enbridge belong in your portfolio?

It was a great quarter overall for Enbridge, so I think its stock responded correctly by moving higher. I also think this could be the start of a sustained rally higher because its stock still trades at inexpensive forward valuations, and because it has a high dividend yield, which will continue to attract investors.

First, Enbridge’s stock trades at just 25.9 times its median earnings per share outlook of $2.20 for fiscal 2015 and only 22.4 times analysts’ estimated earnings per share of $2.55 for fiscal 2016, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 39.3.

Second, Enbridge pays a quarterly dividend of $0.465 per share, or $1.86 per share annually, which gives its stock a 3.3% yield at today’s levels. The company has also increased its annual dividend payment for 19 consecutive years, with an average growth rate of 14% over the last decade, and it expects to increase it by another 14-16% annually through 2018.

With all of the information provided above in mind, I think Enbridge represents one of the best long-term investment opportunities in the market today. All Foolish investors should take a closer look and strongly consider making it a core holding.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

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