Pick Enbridge Stock Over Enterprise Products in Today's Energy Market?

Enbridge Inc. ENB and Enterprise Products Partners EPD are two midstream energy giants. Given the nature of their business model, where shippers utilize their oil and gas storage and transportation assets, the players are less vulnerable to volatility in commodity prices.

Over the past year, ENB has risen 33.2%, outperforming EPD’s 16.4% growth. However, this outperformance alone doesn't necessarily put Enbridge in a stronger position than Enterprise Products. To build a solid investment case, it’s important to dive deeper into the underlying business fundamentals and long-term outlook.

One-Year Price Chart

Enbridge’s Cash Flows More Insulated Than EPD’s

The minimization of commodity price volatility and volume risks in Enbridge’s business model stems from regulated or take-or-pay contracts, which support 98% of its EBITDA. Further, more than 80% of this midstream energy firm’s profits are generated from activities where the company can automatically raise prices or fees. Thus, ENB, a leading midstream energy player, is keeping pace with rising costs, which protects its earnings and dividend payments even in a high-inflationary environment.

This stability in the business model is contributing to its investment-grade credit rating while providing long-term visibility into cash flows.

On the contrary, Enterprise Products’ midstream business is more dependent on the volumes of oil and gas being transported through its pipelines. Hence, its earnings are more vulnerable to global demand for commodities. 

ENB Bets Big on Clean Energy While EPD Sticks to Fossil Fuels

Apart from traditional midstream operations, Enbridge is allocating huge capital toward cleaner energy, including wind farms and solar energy projects. With the world gradually demanding cleaner energy, the company’s renewable energy projects will meet the growing need for electricity from millions of homes.

Enterprise Products, on the other hand, while staying focused mostly on fossil fuels and related chemicals, is losing appeal to investors with a preference for cleaner alternatives.

Which Stock Should Investors Buy?

Coming to the valuation story, it seems that investors are willing to pay a premium for ENB compared to EPD. This is reflected in Enbridge’s current trailing 12-month enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) ratio of 15.13 compared with Enterprise Products’ 10.24.

Also, unlike EPD, Enbridge has witnessed upward earnings estimate revisions for 2025 over the past 30 days.

Given the current landscape, it's evident that Enbridge stands out as a stronger stock than Enterprise Products, offering more promising growth prospects. Hence, investors should refrain from EPD and bet on ENB right away. Currently, ENB has a Zacks Rank #2 (Buy), while EPD carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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