We have reaffirmed our Neutral recommendation on
Enbridge Energy Partners L.P.
) on Jun 4, 2013, based on its complimentary position to reap
benefits from its diversified business portfolio and stable
fee-based operating income. However, a volatile 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
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
A focus on fee-based and diversified businesses has enabled
Enbridge Energy Partners to dilute its business risks, as well as
provide a stable and steadily growing earnings profile. We remain
positive on Enbridge given its increased exposure to the Bakken
Shale, the Haynesville Shale and GraniteWash. We believe these
growth prospects have not been fairly captured by its current
yield of 7.3%.
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 - the
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
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% for 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.
Furthermore, through the expansion of its natural gas
gathering and processing business, Enbridge has increased its
risk exposure to commodity prices.
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
Delek Logistics Partners, LP
Ferrellgas Partners LP
), which are expected to perform impressively over the next few
months and carry a Zacks Rank #1 (Strong Buy).
DELEK LOGISTICS (DKL): Free Stock Analysis
ENBRIDGE EGY PT (EEP): Free Stock Analysis
ENERPLUS CORP (ERF): Free Stock Analysis
FERRELLGAS -LP (FGP): Free Stock Analysis
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