30 May

Why Enbridge Stock Has Underperformed TC Energy in 2019?

WRITTEN BY Rekha Khandelwal, CFA

Enbridge stock

Enbridge (ENB) has risen ~21% in 2019. Enbridge had underperformed TC Energy (TRP), which has risen 38% year-to-date. A delay in Enbridge’s Line 3 Replacement project and analysts’ downgrades likely impacted the stock. Enbridge has underperformed TC Energy during the past two-year and five-year timeframes. Higher leverage after the Spectra Energy merger could be a contributing factor. Since the merger, Enbridge has managed its leverage.

Why Enbridge Stock Has Underperformed TC Energy in 2019?

The consolidation of Enbridge Income Fund Holdings, Enbridge Energy Partners, Enbridge Energy Management, and Spectra Energy Partners in 2018 simplified Enbridge’s structure. However, the consolidation resulted in dilution due to shares issued to complete the acquisitions. Enbridge has taken steps to address the dilution. Enbridge has suspended its Dividend Reinvestment Program with the objective of moving towards self-funding its capital program. Overall, the stock appears to be on strong footing for future growth.

Asset monetization

On May 28, TC Energy announced an agreement to sell 85% equity interest in the Northern Courier pipeline to Alberta Investment Management for 1.15 billion Canadian dollars. TC Energy will continue to operate the pipeline. The sale is part of the company’s ongoing efforts to fund its capital program and maintain its targeted leverage metrics.

Enbridge and TC Energy have outperformed the Energy Select Sector SPDR ETF (XLE) in 2019. Stronger crude oil prices supported energy sector stocks in 2019.

Short-term indicators

With a 14-day RSI (relative strength index) of 72, TC Energy is trading in the “overbought” zone. TC Energy is trading above its 50-day and 200-day moving averages. Enbridge’s 14-day RSI stands at ~62. Enbridge is trading close to its 50-day moving average, which might act as a support for the stock in the near term.

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