We have reaffirmed our Neutral recommendation on
Enbridge Energy Partners L.P.
) on January 3, 2013, based on its complimentary position to reap
benefits from its partnership's diversified business portfolio
and stable fee-based operating income. However, a depressed
natural gas price environment is expected to weigh on the stock.
The company holds a Zacks Rank #3, which is equivalent to a
short-term Hold rating.
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Enbridge Energy Partners is a master limited partnership, engaged
in the gathering, processing and transmission of natural gas and
crude oil. The partnership is best known for its ownership of the
Lakehead System, one of the world's longest petroleum pipeline
systems, which transfers over 60% of the Canadian oil output into
the U.S. This unique position helps the partnership to capitalize
on the growing Canadian oil sands production.
The partnership has more than $3 billion worth of organic growth
projects lined up for the next two years, focused on natural gas
liquids (NGLs) and crude oil. The projects -majority of which
will be productive in 2013 - are driven by the sharp rise in
liquids drilling from prolific shale plays in the U.S., including
the Bakken Expansion, Border to Flanagan Expansion, Cushing
Terminal Expansion and the Texas Express NGL pipeline.
Moreover, the Texas Express Line, expected to come online by
second quarter 2014, will facilitate the transfer of additional
NGL volume to Mont Belvieu. We believe these projects will lead
to distribution growth, which is projected at 2-5%, over the next
couple of years.
The partnership's $1.7 billion capex budget for 2012 mainly
comprises 70% Liquids and 30% Natural Gas projects.
However, Enbridge's midstream natural gas business is sensitive
to changes in natural gas supply, demand fundamentals and
commodity cycles associated with gas processing margins.
Its Marketing segment reported a loss of $1.2 million in the
third quarter due to weak natural gas pricing and narrower
natural gas basis differentials. Furthermore, through the
expansion of its natural gas gathering and processing business,
Enbridge has increased its risk exposure to commodity prices.
No earnings momentum has been witnessed for the stock over the
last 7 days for the fourth quarter of 2012 and for the full year
2012. The Zacks Consensus Estimates for the fourth quarter and
for the full-year 2012 is currently pegged at 26 cents per share
and $1.06 per share, reflecting a year-over-year decrease of
18.8% and 23.7%, respectively.
Other Stocks to Consider
While we prefer to remain on the sidelines for Enbridge, there
are other stocks in the sector that appear rewarding. These
Cabot Oil & Gas Corp
Lone Pine Resources Inc.
), which are expected to perform impressively over the next few
months and carry a Zacks Rank #1 (Strong Buy).