Enbridge Inc. (TSX:ENB) performed better than expected in its first quarter. Analysts had expected the company’s earnings per share, or EPS, to come in at $0.56 on an adjusted basis. Instead, it earned $0.60.
Enbridge, itself, is upbeat on the company’s outlook. As far as the near term is concerned, management believes the company’s organic growth program, including projects recently placed into service and those expected to be completed over the balance of the year, will help deliver full-year adjusted EPS of $1.84 to $2.04. If achieved, the company will increase its EPS by three to 15 per cent from the $1.78 it earned in 2013.
Enbridge transports, distributes and generates energy. As a transporter in Canada and the U.S., the company operates the world’s longest crude oil and liquids transportation system. It’s involved in natural gas gathering, transmission and midstream businesses, and in power transmission. As a distributor, it owns and operates Canada’s largest natural gas distribution company and provides distribution services in Ontario, Quebec, New Brunswick and New York State. As a generator, it has interests in more than 1,800 megawatts of renewable and alternative energy generating capacity and is expanding its interests in wind, solar and geothermal facilities.
For the three months ended March 31, 2014, Enbridge made $492 million, or $0.60 a share, on an adjusted basis, compared with $488 million, or $0.62 a share, in the same period of 2013. The lower EPS in the latter period reflects an increase in the number of common shares outstanding.
Adjusted earnings within liquids pipelines declined 0.5 per cent to $218 million due to lower contributions from Canadian Mainline and Seaway Crude Pipelines System.
Within gas distribution, earnings decreased 8.8 per cent to $103 million, largely because of the timing of a gas transportation cost adjustment related to the first quarter of 2013, which was recorded in the second half of 2013.
But the declines in these two segments, as well as a decline in earnings at the gas pipelines, processing and energy services segment, were more than offset by a 25-per cent increase in earnings from sponsored investments. These include Enbridge Energy Partners, which benefitted from higher throughput and tolls on major liquids pipelines, among other factors.
Among the projects Enbridge is banking on over the longer term is the $7-billion Line 3 Replacement Program, the largest project in its history. This is the company’s mainline system running from Edmonton, Alberta to Superior, Wisconsin. The company regards this project as very important because it will be a major enhancement to its mainline liquids pipeline system. The project is expected to support the safety and operational reliability of the system, enhance flexibility and optimize throughput. Other projects the company is counting on are investments in its regional oil sands systems and renewable power generation business
With a commercially secured portfolio of growth projects totaling a record $36 billion, plus an additional $5 billion of projects expected to start service by 2017, management says: “there is a high degree of transparency that we will deliver average annual earnings per share growth of 10 to 12 per cent to 2017.”
The stock trades at a high 25.8 times the $1.96 per share Enbridge will probably earn in 2014. This high premium reflects the company’s superior growth prospects in its sector, along with a high degree of confidence among investors that earnings targets will be achieved. However, this doesn’t make the shares invulnerable to disappointments that could very well erode the premium multiple. That makes the shares best suited to more venturesome investors who are focused on the long term. The shares yield 2.8 per cent.
Enbridge is a buy for long-term growth.
Money Reporter, MPL Communications Inc.
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