On Dec 1, 2015, we issued an updated research report on Enbridge Energy Partners LP EEP, a master limited partnership (MLP).
Enbridge’s focus on fee-based and diversified businesses has enabled it to dilute its business risks as well as provide a stable and steadily growing earnings profile. We remain positive on Enbridge given its increased exposure to the Bakken Shale, the Haynesville Shale and Granite Wash. We believe that these growth prospects have not been fairly captured by its current yield of 9.40%.
Enbridge’s Lakehead system transfers over 60% of the Canadian oil output into the U.S. This unique position helps the partnership to capitalize on the growing Canadian oil sands production. Moreover, Enbridge’s 35% share in the Texas Express pipeline and the Ajax project increases its natural gas liquids handling and raises the near-term growth prospects significantly.
Enbridge’s Liquids segment is also poised to benefit from increasing production in the Bakken Shale and Canadian Oil Sands regions as well as higher revenues from Alberta Clipper. The partnership plans to focus on increasing crude takeaway capacity in the Bakken and intensifying capacity to ship crude eastward to the upper Midwest and Canadian refineries.
However, Enbridge’s midstream natural gas business is sensitive to changes in natural gas supply, demand fundamentals and commodity cycles associated with gas processing margins. Furthermore, through the expansion of its natural gas gathering and processing business, Enbridge has increased its risk exposure to commodity prices.
Moreover, a decline in natural gas processing margins or a drop in domestic oil, gas drilling and/or end market demand would lower the growth rate and adversely affect distributable cash flow of the partnership.
Enbridge could be affected by a number of global macro issues, which include sovereign debt risks, defaults on sovereign credits, and changes in U.S. monetary and fiscal as well as tax policies. Additionally, an economic slowdown could impact the demand and price of crude oil, which could hurt Enterprise's margins in its NGL, natural gas and other businesses.
Zacks Rank and Other Stocks
Enbridge carries a Zacks Rank #3 (Hold). Some better-ranked players from the energy sector are Energy Transfer Equity, L.P. ETE, ReneSola Ltd. SOL and Boardwalk Pipeline Partners, LP BWP. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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