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Stock of the Week: Enbridge

The pipeline is back in action after the court order was lifted: does it matter?

Andrew Willis 5 October, 2020 | 1:38AM
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Earlier last month, Enbridge got the go ahead from a U.S. judge in Michigan to restart part of its Line 5 pipeline. This is after it was closed since June 25th, when it was ordered to shut down after damage to part of the pipeline was found. Now that we’re back in business – do we need to assess the damage?

Not quite. Negative events that gain a lot of publicity aren’t always as bad as they seem when you look at the books. In this case, it might mean quite literally, more of the same. While this pipeline was shutdown completely, the mainline system was already running at reduced rates because of reduce demand because of well…the whole pandemic thing.

Looking at longer term trends gives you the opportunity to better assess near term threats, which in this case paled in comparison and could have been a bad point to sell. And if you’re an investor with a mindset that goes beyond the pandemic you might find that that threat isn’t as bad as it seems.

Morningstar senior equity analyst Joe Gemino says that the market is already mistaken to price Enbridge as if oil prices were going to stay weak forever from the pandemic. After the pipeline problem, we’re not changing fair value estimates for the company, nor are we changing its moat ratings.

Investors that are holding steady on their outlook as well and holding get a great dividend while they wait for a potential 30% upside. There will be volatility ahead for the stock as we continue to grapple with other types of shutdowns.     

For Morningstar, I’m Andrew Willis.

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Andrew Willis

Andrew Willis  is Content Editor for Morningstar.ca. Follow him on Twitter @AndrewWillisCDN.


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