Enbridge Inc. (ENB) and Kinder Morgan, Inc. (KMI) are two leading energy infrastructure companies engaged in the transportation of oil and natural gas. Based in Canada, ENB operates through Liquids Pipelines, Gas Transmission and Midstream, Gas Distribution and Storage, Renewable Power Generation, and Energy Services segments. KMI operates through four segments: Natural Gas Pipelines, Products Pipelines, Terminals, and CO2 segments.

According to the United States Energy Information Administration, crude oil and natural gas production will increase this year because of increased drilling. An increase in production should lead to higher storage and transportation volumes. Furthermore, the Biden administration’s proposal to build sustainable energy infrastructure should position energy pipeline companies such as ENB and KMI as facilitators of renewable energy and a cleaner power grid.  The push towards decarbonization and renewable energy integration should further boost these companies’ growth.

While ENB has gained 21.9% year-to-date, KMI has returned 25.6% over the same period. In terms of past three month’s performance, KMI is the clear winner with 22.4% in gains versus ENB’s 10.5% returns. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

Last month, ENB entered  a partnership with Walker Industries and Comcor Environmental to build renewable natural gas (RNG) projects across Canada and transform landfill waste into carbon-neutral energy. The collaboration should  help deliver a cost-effective solution in advancing Canada’s energy transition to a low-carbon basis.

In February, ENB’s subsidiary, EDF Renewable, and wpd, a European renewable energies company, began construction of  the Calvados offshore wind farm. This three and a half-year construction project should contribute significantly to the ENB’s long-term growth and establish it as a competitive player in offshore wind power in Europe.

In March, KMI formed a new Energy Transition Ventures group within the company to analyze and engage in commercial opportunities emerging from the low-carbon energy transition. This move should provide a solid footing to facilitate the energy transition and offer services like carbon capture, renewable natural gas capture and hydrogen production.

Also in February, KMI and Brookfield Infrastructure Partners L.P. agreed to sell a 25% minority interest in Natural Gas Pipeline Company of America LLC to ArcLight Capital Partners, LLC for $830 million. KMI will continue to operate the pipeline and the  two companies will each hold a 37.5% stake in NGPL.

Recent Financial Results

In the fourth quarter, ended December 31, 2020, ENB’s EBITDA increased 38.6% year-over-year to CAD$4.03 billion. The company’s net earnings increased 137.9% from its  year-ago value to CAD$1.78 billion, while cash provided by operating activities rose 13.1% from its  year-ago value to CAD$2.25 billion. However, its adjusted EPS came in at CAD$0.56, representing an 8.2% decline from the prior-year quarter.

KMI’s total revenue increased 67.8% year-over-year to $5.21 billion, in the first quarter ended March 31, 2021. The company’s operating income was $1.89 billion for this period, compared to $43 million in the first quarter of 2020. Its adjusted EBITDA increased 52% from the year-ago value to $2.81 billion. Also, KMI’s adjusted EPS rose 150% year-over-year to $0.60 over this period.

Past and Expected Financial Performance

ENB’s EBIT has increased at an 8.3% CAGR over the past three years. In comparison, KMI’s EBIT has grown at a 7.3% CAGR  over this period. Also, the CAGR of ENB’s net income has been 5.6% over the past three years. In comparison,  KMI’s net income increased at a 90.1%  annualized rate over the same period.

ENB’s revenue is expected to rise 10.4% in the current year, and 6.8% next year. A consensus EPS estimate indicates an 11.2% increase in 2021 and 15.7% increase in 2022. In comparison, analysts expect KMI’s revenue to increase 11.8% in its fiscal year 2021. The company’s EPS is estimated to increase 22.7% in the current year and at a 1.6% rate per annum rate over the next five years.

Profitability      

ENB’s trailing-12-month revenue is more than twice KMI’s . But KMI is more profitable, with a 54.7% gross profit margin versus ENB’s 47.1%.

Also, , KMI’s 23.1% levered free cash flow margin compares favorably with ENB’s 4.1%.

Valuation

In terms of forward PEG, ENB is currently trading at 3.19x, which is 53.4% higher than KMI, which is currently trading at 2.08x. Also, its 15.38x trailing-12-month EV/EBITDA  is 38.3% higher than KMI’s 11.12x.

ENB is also more expensive in terms of trailing-12-month Price/Cash flow (10.26x versus 7.03x).

POWR Ratings

KMI has a B overall rating, which equates to a Buy in our proprietary POWR Ratings system, while ENB has an overall C rating, which represents a Neutral. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

In terms of Growth Grade, both ENB and KMI have a B, which is consistent with their earnings and revenue growth. But in terms of Value Grade, both ENB and KMI have a C, given their higher-than-industry P/E ratios.

Of the 92 stocks in the D-rated Energy – Oil & Gas industry, KMI is ranked #12. ENB is ranked #30 of 52 stocks in the B-rated Foreign – Oil & Gas industry.

In addition to what we’ve highlighted, our POWR Ratings system has also rated both ENB and KMI for Sentiment, Stability, Quality and Momentum. Get all ENB ratings here. Also, click here to see the additional POWR Ratings for KMI.

The Winner

The rapid transition to sustainable energy sources and technologies, and increasing investment in renewable energy infrastructure development, should continue  bolstering  ENB’s and KMI]s growth. However, KMI has an advantage  given its robust intrastate pipeline systems and strong cash balance. We believe its strong product portfolio and strategic investments should help it perform better than ENB.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Energy – Oil & Gas industry. Also, click here to see the top-rated stocks in the Foreign – Oil & Gas industry.

ENB shares were trading at $39.64 per share on Thursday morning, down $0.30 (-0.75%). Year-to-date, ENB has gained 26.19%, versus a 11.19% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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