What’s in Store for Enbridge Energy Partners in 2016 and beyond?
Correlation with crude oil prices
Enbridge Energy Partners’ (EEP) stock price has no doubt been impacted by crude oil prices. The correlation between EEP’s stock price and the near-month WTI (West Texas Intermediate) crude oil futures price over the last 15 years has been 0.32, which indicates a medium positive correlation between the two.
Notably, the correlation between WTI and EEP share prices is even higher, at 0.53 over the last 12 months. Crude oil prices have fallen sharply since mid-2014.
The increased correlation between WTI and EEP prices over the last 12 months means that a recovery in oil prices could result in a higher stock price for Enbridge Energy Partners. But this also means that EEP shares could remain under pressure as long as crude oil prices remain weak. Enbridge Energy Partners forms ~1% of the Guggenheim Multi-Asset Income ETF (CVY).
Peers Energy Transfer Partners (ETP), Williams Companies (WMB), and Williams Partners (WPZ) had correlations of 0.44, 0.35, and 0.38, respectively, with WTI over the last 12 months.
EEP’s correlation with natural gas
EEP’s stock price had a very low correlation with natural gas. The correlation coefficient between natural gas and EEP for the last 12 months was 0.09. Therefore, natural gas prices may not impact EEP’s stock price much in the future.
Outlook for EEP
EEP’s Natural Gas segment may continue to face headwinds, as the drilling activity in EEP’s areas of operations remains low. However, its Liquids segment’s performance may remain stable, as discussed previously.
EEP has maintained reasonable leverage over the last few quarters. The rise in its leverage in the fourth quarter of 2015 may not be a matter of huge concern if the company’s expected capex cuts bring it down to reasonable levels again. However, with a distribution coverage below 1, it will be interesting to see if the company is able to sustain its per-unit distributions at the current level.
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