Enbridge (ENB – Research Report), the Energy sector company, was revisited by a Wall Street analyst yesterday. Analyst Praneeth Satish from Wells Fargo assigned a Sell rating on the stock and has a C$43.00 price target.
Praneeth Satish’s rating is based on a thorough analysis of Enbridge’s financial outlook and capital expenditure (capex) plans. His Sell rating reflects concerns that, despite Enbridge forecasting a higher than expected compound annual growth rate (CAGR) for EBITDA, their planned increase in capex may not be sufficiently covered by the projected earnings. Specifically, Enbridge’s EBITDA CAGR is anticipated to be 7-9% over the next three years, surpassing both the consensus estimate of 6% and Satish’s own estimate of 5%. However, the capex guidance is also higher than expected, with the company planning to invest C$6-7 billion annually, compared to the consensus estimate of C$5.3 billion and Satish’s estimate of C$5.4 billion. This substantial increase in capex could explain the positive variance in EBITDA, yet it raises concerns about overall financial sustainability and return on investment.
Moreover, while Enbridge’s guidance for distributable cash flow (DCF) per share growth aligns with Satish’s forecast, there are potential risks associated with the company’s cash tax forecasts, which could impact the DCF guidance despite the higher EBITDA projection. Furthermore, Enbridge’s medium-term EBITDA CAGR expectation of around 5% is still above the consensus estimate and Satish’s estimate, indicating an optimistic outlook that may not be fully realistic. These combined factors, including aggressive capex plans and optimistic EBITDA growth projections, contribute to Satish’s decision to give Enbridge a Sell rating, as they may pose risks to the company’s financial health and shareholder value.
Satish covers the Energy sector, focusing on stocks such as TC Energy, Enbridge, and EnLink Midstream. According to TipRanks, Satish has an average return of 6.7% and a 63.64% success rate on recommended stocks.
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Enbridge (ENB) Company Description:
Enbridge, Inc. is a Canadian energy infrastructure company that transports crude and other liquid hydrocarbons. The pipeline giant is also engaged in renewable power generation, gas distribution and storage as well as energy marketing services.
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