Morningstar | FERC Affects Enbridge Energy Partners in 2Q. See Updated Analyst Note from 03 Aug 2018
In its second quarter, narrow-moat Enbridge Energy Partners felt the impact of the Federal Energy Regulatory Commission's ruling on the tax disallowance. Under the ruling, the company is not longer permitted to include taxes on the toll calculation for the Lakehead system, the partnership's main assets. Accordingly, Enbridge Energy Partners reported second-quarter adjusted EBITDA of $380 million, a decrease of 4% from the year-ago quarter. Distributable cash flow also decreased 9% from the year-ago quarter to $166 million.On a positive note, Enbridge Energy Partners maintained its quarterly distribution of $0.35 per unit. On an annualized basis, the 2018 distribution represents a 12% return to investors, among the highest of the master limited partnerships we cover.
Despite the lackluster results, we are maintaining our $16 fair value estimate, which is based on an estimated conversion rate to Enbridge Inc.’s shares. As a reminder, Enbridge Inc. proposed to acquire all of the outstanding shares of its sponsored vehicles in exchange for Enbridge Inc. shares.
We consider Enbridge a rare triple threat, boasting a wide moat, an attractive 5.8% dividend yield, and a cheap valuation. While the market continues to place too much emphasis on the dividend and overlook the impact that the growth portfolio will have on future cash flows and the balance sheet, the time is right for long-term investors to capitalize on the stock's considerable upside while collecting a steady stream of growing income.
Please refer to our January report, "Best Idea Enbridge Is a Triple Threat," for a deeper dive into Enbridge Inc.
For a detailed look at Canadian crude and pipeline trends, please refer to our September 2017 Energy Observer, "Don't Overlook Oil Sands: Falling Costs and More Infrastructure Will Make Canadian Production Globally Competitive."
Enbridge Energy Partners owns and operates crude oil and liquid petroleum transportation and storage assets, and natural gas gathering, treating, processing, transportation and marketing assets in the U.S. The company's Liquids segment includes the Lakehead, North Dakota and the Mid-Continent crude oil systems. The company's Lakehead system consists of a series of interstate common carrier crude oil and liquid petroleum pipelines, and storage assets. The company's Natural Gas segment consists of natural gas and natural gas liquids (NGL), rail and liquid marketing services, gathering and transportation pipeline systems, natural gas processing and treating facilities and NGL fractionation facilities.
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