EUR 850.00 For Business Accounts Only

Morningstar | Best Idea Enbridge Agrees to Acquire Enbridge Energy Partners

Enbridge Energy Partners operates as a master limited partnership and was formed by its general partner, Enbridge Inc. The firm operates a portfolio of transportation systems in the U.S., highlighted by the U.S. portion of the Canadian Mainline pipeline system, the Lakehead system.Enbridge Energy Partners is positioned to benefit from growing oil sands supply dynamics with its Lakehead system. The regulated Canadian Mainline system generates attractive tolls, while representing approximately 70% of Canada’s pipeline takeaway capacity. The system offers refinery access to various markets, adding to the network’s attractiveness and differentiating itself from competing pipelines. While competing pipeline expansion projects appear more likely than in the past, expansion is far from certain. Even if competing pipelines are built, we expect the Canadian Mainline system to be the best alternative among Canada’s takeaway capacity due to its large size and access to a wide array of refining markets. The Lakehead system will continue to provide reliable cash flows for the company. We expect the Line 3 Replacement project to add incremental cash flows above the company's cost of capital, while providing necessary relief for oil sands producers. However, we see Enbridge Energy Partners as suffering a major blow related to the Federal Energy Regulatory Commission's policy change regarding the disallowance of income tax collection from producers. To offset this headwind, we see the company moving toward a C-corporation structure in 2020. We think this will have a negative impact on our valuation and distributions moving forward as the entity will be required to pay taxes. Despite the change, we think that there is still plenty of upside in the stock. The Line 3 Replacement project will drive future cash flows for the company. We think that the market is overlooking the benefit that Line 3 will provide along with the company's sole focus on high returns liquid pipeline assets. Accordingly, the stock looks undervalued at current levels.