Enbridge Inc. (NYSE:ENB) has declined by around 17% since hitting its record high in May, likely as a result of rising bond yields, lack of visibility on the company’s 5% growth guidance through the end of the decade, and the recently closed equity offering intended to fund the midstream operator’s strategic acquisitions.
However, BMO Capital sees this pullback as an opportunity and on September 15, the firm upgraded ENB from ‘Market Perform’ to ‘Outperform’, while also slightly raising its price target from C$79 to C$79.50. The target boost implies an upside of 18% from the current levels.
The analyst believes that Enbridge’s scale, limited commodity exposure, and diversified assets are underappreciated. BMO also cited the company’s improving visibility on growth, robust backlog, opportunistic acquisitions, and improved balance sheet as reasons behind the upgrade.
Building a Bigger Growth Engine:
Enbridge’s aggressive expansion strategy adds significantly to its bull case. The company announced on September 9 that it would acquire Tallgrass Energy’s crude oil business for $2.55 billion in cash, expanding its US liquids pipeline network by buying a majority stake in the Pony Express Pipeline and other assets. The midstream operator expects the acquisition to be accretive to distributable cash flow per share in the first full year of ownership.
Similarly, Enbridge announced last month that it had agreed to acquire Salt Creek Midstream’s crude oil gathering business for $600 million in cash, further bolstering its presence in the prolific Permian Basin. The acquired assets have an average remaining contract life of about 10 years, providing stable long-term cash flows.
The company’s C$41 billion of secured growth backlog also provides a substantial base of projects already identified for future investment. Enbridge has already approved approximately C$9 billion of projects this year, and has sanctioned up to C$20 billion in projects to drive revenue and earnings growth through the end of the decade.
Lastly, it needs mentioning that Enbridge has a low-risk, utility-like business model, with 98% of its cash flow coming from long-term, inflation-protected, rate-regulated contracts. It also has an attractive dividend yield of 5.78% and has grown its quarterly payout for 31 consecutive years. This makes it a strong option for income-oriented investors.
Debt and Dilution Raise Concerns:
The primary concern is that Enbridge’s improved growth visibility comes with substantial capital requirements and some dilution. The company recently closed a C$3 billion equity offering, with the proceeds going towards partially funding its announced acquisitions and creating financial flexibility to fund potential future growth opportunities. While the offering reduces the company’s reliance on incremental debt, it dilutes the per-share cash flows unless the acquired assets and new projects can generate sufficient returns.
Enbridge’s heavy debt load has also been weighing on its earnings. It reported a 5.1x debt-to-EBITDA ratio at the end of the second quarter, which is a cause for concern even for a company with steady cash flows such as Enbridge. However, it needs mentioning that a large part of this debt comes from the costs of new energy infrastructure projects, which will add to the firm’s long-term revenue growth.
Conclusion:
BMO Capital’s upgrade of Enbridge to Outperform signals confidence in the company’s improving long-term growth visibility. The midstream operator’s massive C$41 billion backlog, strategic acquisitions, and contracted cash flows also add to its investment thesis. That said, Enbridge’s elevated leverage and equity dilution remain key concerns.
Market Sentiment:
Enbridge Inc. was held by 31 hedge funds at the end of Q2 2026 in the Insider Monkey database, with a total investment value of $3.3 billion. This is down from 37 hedge fund investors with a cumulative stake value of just over $4.5 billion in the previous quarter.
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This article is originally published at Insider Monkey.
