In accordance with the current deterioration in the underlying energy markets, the shares of Enbridge Inc. (NYSE:ENB), a leading provider of energy infrastructure solutions, have fallen significantly from their highs in November 2022 and January 2023.

Despite this, we think that Enbridge is well-positioned for the ensuing energy recovery due to its great insight into adjusted EBITDA profitability.

Its most recent results report showed that FY22 performed well, with adjusted EBITDA growing by almost 11% above FY21’s 5.5% growth.

Although we feel the optimism was reflected at ENB’s June 2022 highs, investors shouldn’t depend on “old” information on its strong earnings growth to make a judgment about their future performance.

Significantly, the price of Enbridge stock dropped more than 25% from its June peak to its lows in November. As a result, in our last post, we advised investors to exercise patience as we evaluated the strength of the market’s recovery from its November lows.

According to our analysis, the market was correct to scale back its optimism in ENB. According to its FY23 guidance, its adjusted EBITDA growth will resume normal growth, which will result in an increase in its distributable cash flows (DCF).

At the midpoint of its range, management projected YoY adjusted EBITDA growth of 4.3%, a sharp decline from FY22’s 11% increase.

But, with the prior 25% decline that most likely resulted in long-term buyers returning in November, may Enbridge’s darkest days be behind them?

The NTM EBITDA multiple for ENB has decreased to 11.9x, just one standard deviation below the 13.5x 10Y average.

As a result, we concluded that market participants had probably factored in growth normalization for their operating performance going forward as investors reduced the risks associated with commodity price volatility.

Given the size of Enbridge’s pipeline, it also has escalators to offset the most recent increase in expenses while maintaining a conservative leverage ratio. Additionally, the business is confident that its “high Mainline utilization” will continue to fuel growth in 2023.

As a result, even though analysts at the company’s most recent earnings presentation were worried about the negotiating progress, it is convinced that the commercial framework under discussion with its clients should provide favorable results.

At its next Investor Day on March 1, Enbridge plans to present its medium- and long-term forecast, which might include updates on the negotiations progress. So, we advise investors to carefully consider the management’s commentary.

Despite this, management informed investors that “Mainline discussions do not change the priorities of the company, [and] are part of the business’s core components,” therefore we don’t anticipate any big structural changes.

Due to the underlying commodity price weakness, particularly in natural gas futures, the market may have decided to de-risk its execution.

Nonetheless, the NTM dividend yield is about 7%, which is significantly higher than its 10-year average dividend yield of 5.3%, and indicates that the market has likely factored in the challenges.

Despite this, Enbridge stock was unable to break through its overhead resistance zone from November 2022 at the $42 price level, suggesting Enbridge may remain range-bound in the foreseeable future.

Despite this, we see solid support that ought to support buying upside at the present levels, luring cautious investors back into the fray.

Furthermore, as it gets closer to lows last seen in September 2020, the catastrophic drop in natural gas futures appears to have been overstated. The risk associated with commodity prices has dramatically decreased in the Gas Transmission sector, according to management.

While Enbridge stock’s long-term price chart shows a probable rising continuation pattern, we determined that the recent headwinds had given investors a good opportunity to add exposure to near-term weakness.

Featured Image: Freepik @ evening_tao

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