Is Enbridge's Recent Rally Just the Beginning?

Enbridge Inc. (ENB) has long been a cornerstone of North America's energy infrastructure, but its recent performance has sparked a critical question: Is the rally in its shares merely a short-term bounce, or does it signal the start of a broader re-rating driven by its strategic positioning in the energy transition? To answer this, investors must reconcile two seemingly contradictory narratives: a discounted cash flow (DCF) model that suggests Enbridge is deeply undervalued and a price-to-earnings (PE) ratio that appears elevated relative to its peers.

The DCF Case for Undervaluation

Enbridge's DCF valuation paints a compelling picture of long-term value creation. For the last twelve months, the company generated CA$5.3 billion in Free Cash Flow (FCF), a figure analysts project to surge to CA$22.9 billion by 2035. Plugging these numbers into a two-stage DCF model yields an intrinsic value of CA$176.10 per share, implying the stock is trading at a 62.3% discount to its estimated worth. This gap is staggering, especially given Enbridge's robust financials: a 4.7x debt-to-EBITDA ratio, a $32 billion secured growth backlog, and a 2025 adjusted EBITDA guidance of $19.4–$20.0 billion.

The company's capital allocation strategy further bolsters this case. Enbridge has added $2 billion in secured growth projects in Q2 2025 alone, including the Clear Fork Solar project and the Line 31 expansion. These projects, coupled with its $9–$10 billion annual investment capacity, suggest a durable path to cash flow growth. For investors with a 10-year horizon, the DCF model implies a high probability of asymmetric upside if Enbridge's cash flow projections materialize.

The PE Puzzle: A Premium in a Discounted Sector

Yet Enbridge's TTM PE ratio of 23.26 as of August 2025 tells a different story. While this is a 12.86% drop from its four-quarter average and 6.24% below its 10-year historical average, it remains significantly higher than the industry median of 12.17 for Oil & Gas midstream peers. For context:
- Enterprise Products Partners (EPD): 11.79
- TC Energy (TRP): 17.12
- Kinder Morgan (KMI): 21.54
- Energy Transfer (ET): 12.73

Enbridge's PE ranks worse than 79% of its sector peers, suggesting investors are paying a premium for its earnings relative to competitors. This divergence raises a key question: Is the market overestimating Enbridge's growth potential, or is it underestimating the value of its energy transition investments?

The answer lies in the asymmetric nature of Enbridge's business model. While traditional midstream peers like EPD and ET trade at single-digit PEs due to their reliance on fossil fuels, Enbridge is increasingly positioning itself as a hybrid player. Its $2 billion in energy transition projects—spanning solar, wind, and hydrogen—could unlock new revenue streams as global demand for clean infrastructure accelerates. The market may be pricing in these opportunities, even if they are not yet reflected in earnings.

Energy Transition as a Catalyst

The energy transition is not just a buzzword for Enbridge—it's a strategic imperative. The company's $32 billion growth backlog includes projects that align with decarbonization trends, such as the North Aitken Creek gas storage expansion (which supports renewable energy integration) and its onshore and offshore wind developments. These projects are capital-efficient and offer long-term, stable cash flows—traits that are increasingly scarce in a sector grappling with regulatory and environmental headwinds.

Moreover, Enbridge's financial flexibility—evidenced by its recent $2.25 billion in medium-term notes to fund growth—positions it to capitalize on opportunities as they arise. With 7–9% adjusted EBITDA growth guidance for 2023–2026 and 5% annual growth post-2026, the company is building a bridge between its legacy infrastructure and the future of energy.

The Investment Thesis: Asymmetric Upside

The key to Enbridge's potential lies in the asymmetry between its DCF valuation and PE multiple. If the market continues to discount its energy transition efforts, the stock could remain undervalued for years. However, if Enbridge executes on its growth projects and cash flow projections, the current PE premium could be justified—and even expanded—as investors reprice its long-term potential.

For risk-tolerant investors, this creates a compelling scenario: a stock trading at a 62% discount to intrinsic value (per DCF) while also offering a premium valuation multiple that reflects future growth. The downside risk is limited by Enbridge's dividend yield of ~5% and its strong balance sheet, which provides a margin of safety even if cash flow growth slows.

Conclusion: A Rally with Legs

Enbridge's recent rally may indeed be just the beginning. The DCF model suggests the stock has significant upside potential, while the elevated PE ratio hints at a market that is beginning to price in its energy transition ambitions. For investors who can look beyond short-term volatility and focus on the long-term cash flow trajectory, Enbridge offers a rare combination of value and growth in a sector undergoing fundamental transformation.

In a world where energy infrastructure is both a necessity and a battleground for decarbonization, Enbridge's dual narrative—undervalued fundamentals and premium growth expectations—positions it as a standout opportunity. The question is not whether the rally will continue, but whether the market is ready to fully appreciate the scale of Enbridge's potential.