Ignore the Short Sellers: Get Ready for Enbridge Inc. (TSX:ENB) to Unlock Further Value

Enbridge Inc.’s (TSX:ENB)(NYSE:ENB) latest pullback has created an opportunity for investors seeking exposure to higher oil and critical energy infrastructure.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Pipeline and midstream services provider Enbridge Inc.’s (TSX:ENB)(NYSE:ENB) share price continues to languish, having plunged by almost 20% since the start of 2018. Enbridge loaded up on debt and equity when it acquired Spectra Energy for $37 billion last year to create the largest energy infrastructure company in North America. The weakness of its stock can be attributed to a slew of poor results, rising interest expenses, and the expectation of further interest rate hikes, which have sent jitters through the market over Enbridge’s outlook.

Nonetheless, the company has not been sitting idly by. Management remains focused on resolving the current issues, reducing the degree of risk in Enbridge’s operations, and unlocking value for investors. This — along with Enbridge appearing to be oversold — has created an opportunity for investors seeking exposure to higher oil. 

Now what?

The latest initiative announced by Enbridge aimed at boosting its share price is the planned restructuring of its operations to simplify its corporate and capital structure. The plan centres on the company buying its listed vehicles Enbridge Energy Partners L.P.Enbridge Energy Management L.L.C., Spectra Energy Partners L.P., and Enbridge Income Fund Holdings Inc. and placing all of the core liquids as well as gas pipeline assets under the umbrella of a single listed entity.

This plan has arisen because recent U.S. income tax decisions have challenged the standalone viability of Enbridge Energy Partners, Enbridge Energy Management and Spectra Energy. This is because the Federal Energy Regulatory Commission (FERC) ruled that master-limited partnerships (MLPs) can no longer receive a credit for income taxes they don’t pay. That decision has effectively eliminated the benefit of creating and operating such entities. It has also caused Enbridge Income Fund to lose its cost-of-capital advantage, meaning that it is no longer an effective funding vehicle.

By completing the roll-up of these listed vehicles, it will simplify Enbridge’s corporate structure, reduce costs, improve the company’s credit profile, enhance trading liquidity, and bolster the sustainability of dividends. These are all positive outcomes for shareholders, which should go some way to making Enbridge a more transparent and easily understood entity, eliminating much of the uncertainty that has been making it a popular bet among short sellers. 

In a bid to strengthen its balance sheet, further reduce costs, and unlock synergies, Enbridge is focused on divesting non-core assets. This includes the $1.75 billion sale of a 49% interest in North American onshore renewable power assets and its interests in two German offshore wind projects to the Canada Pension Plan Investment Board. Enbridge has also entered a US$1.1 billion transaction to divest its U.S. midstream business, the proceeds of which will be used to bolster its balance sheet and fund its considerable portfolio of growth projects.

These deals will go a long way to assisting the company to meet its planned $3 billion of assets sales during 2018. They will also reduce its sizable pile of long-term debt totaling $61 billion, which will help to boost market confidence in Enbridge.

While that amount of debt appears daunting, it shouldn’t be forgotten that Enbridge has considerable liquidity, finishing the first quarter 2018 with a total of $11 billion available from existing credit facilities across its sponsored vehicles. It also has a well-laddered debt profile, meaning that the repayments associated with its considerable debt are manageable as they fall due.

So what?

The market’s significant lack of confidence in Enbridge appears overbaked, and recent moves by the company to simplify its capital structure as well as strengthen its balance sheet bodes well for its future performance. Not only will they reduce costs, but they will leave Enbridge well positioned to continue expanding earnings by investing in its substantial portfolio of growth assets with 13 projects expected to be completed between now and 2020.

The latest dip in Enbridge’s shares has created an opportunity for investors to gain exposure to North America’s premier energy infrastructure provider. While they wait for the improvements currently underway to boost its share price, they will be rewarded by Enbridge’s regularly growing and sustainable dividend, which yields a very tasty 6%.

Should you invest $1,000 in Restaurant Brands International right now?

Before you buy stock in Restaurant Brands International, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Restaurant Brands International wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

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 Matt Smith has no position in any stocks mentioned.  The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

If You Thought Apple and Microsoft Were Big, You Need to Read This.

The steel industry produced the world's first $1 billion company in 1901, and it wasn't until 117 years later that technology giant Apple became the first-ever company to reach a $1 trillion valuation.

But what if I told you artificial intelligence (AI) is about to accelerate the pace of value creation? AI has the potential to produce several trillion-dollar companies in the future, and The Motley Fool is watching one very closely right now.

Don't fumble this potential wealth-building opportunity by navigating it alone. The Motley Fool has a proven track record of picking revolutionary growth stocks early, from Netflix to Amazon, so become a premium member today.

See the 'AI Supercycle' Stock

More on Energy Stocks

A worker overlooks an oil refinery plant.
Energy Stocks

Dividend Investors: Top Canadian Energy Stocks for March

These two energy stocks have increased payouts and have strong outlooks, making them potentially ideal picks for dividend investors.

Read more »

oil and natural gas
Energy Stocks

3 Top Energy Sector Stocks for Canadian Investors in 2025

Despite ongoing uncertainty amid the tariff war with the U.S., these three TSX energy stocks can be strong long-term holdings…

Read more »

Oil industry worker works in oilfield
Energy Stocks

Is Whitecap Resources Stock a Buy for its 7.8% Dividend Yield?

Whitecap stock's recent merger with Velen sent shares dropping, but this could mean there's a value opportunity.

Read more »

oil pump jack under night sky
Energy Stocks

Canadian Natural Resources: Buy, Sell, or Hold in 2025?

This energy stock has certainly made an impression on investors in the past. But with tariffs coming down hard, what's…

Read more »

Offshore wind turbine farm at sunset
Energy Stocks

Best Stock to Buy Right Now: Brookfield Renewable vs TransAlta Renewables?

These two energy stocks look primed to explode, and at these prices, investors would do well to pick them up…

Read more »

The sun sets behind a power source
Energy Stocks

Emera: Buy, Sell, or Hold in 2025?

Emera stock has had a fairly turbulent year, but does that mean investors should take this opportunity to buy or…

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Outlook for Enbridge Stock in 2025

Enbridge stock has been in the limelight since the tariff war began, making risk-averse investors anxious. Here is what you…

Read more »

bulb idea thinking
Energy Stocks

Got $2,500? 3 Energy Stocks to Buy and Hold Forever

These three energy stocks would be ideal additions to your long-term portfolios, given their solid underlying businesses, stable cash flows,…

Read more »