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Stock Analyst Update

Enbridge Is a Rare Triple Threat

Enbridge is seeking to acquire all public shares of its remaining sponsored vehicles--and we like the move.


Best idea  Enbridge (ENB) has entered into a definitive agreement to acquire all public shares of its remaining sponsored vehicles (Enbridge Energy Partners, Enbridge Energy Management, and Enbridge Income Fund). As a reminder, Enbridge entered into an agreement with Spectra Energy Partners in late August. Under the combined deals, Enbridge will issue approximately 296 million shares and CAD 64 million in cash proceeds, approximating CAD 13.3 billion in total proceeds based on Enbridge’s Sept.17, 2018, closing price. The combined deals represent a 9% premium to Enbridge’s initial proposal in May and a 6% increase to our expectations. We still expect the transactions to close during the fourth quarter.  

The stock is down less than 1% on the news, but we see this as an overreaction. Despite the increase in purchase price, we don’t think the additional premium paid is material enough to change our valuation. Accordingly, we are maintaining our $49 (CAD 64) fair value estimate and wide moat rating.

We like the move, as it simplifies the Enbridge family into a single holding. After the Federal Energy Regulatory Commission issued its tax disallowance proposal in March, the master limited partnerships no longer serve the purpose they were created for: capital-raising vehicles for Enbridge.

We consider Enbridge a rare triple threat, boasting a wide moat, an attractive 6% dividend yield, and a cheap valuation. While the market continues to place too much emphasis on the dividend and overlook the impact that the growth portfolio will have on future cash flows and the balance sheet, the time is right for long-term investors to capitalize on the stock's considerable upside while collecting a steady stream of growing income.

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Joe Gemino does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.