TransCanada Corp. Down Nearly 1% as Credit Suisse Gives Sale Thumbs Up

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Credit Suisse has a Neutral rating and $42 target price on TransCanada Corp. (TRP.TO).

Double dropdown: "TransCanada Corporation announced the sale of a 25% interest in two pipeline assets to TC Pipelines LP (TCPLP). Specifically, TRP will sell a 25% interest in two pipeline assets, Gas Transmission Northwest LLC ( GTN ) and Bison Pipeline LLC (Bison), to TCPLP for roughly US$605m which includes roughly US$81m of proportionate GTN debt. The transaction is expected to close in May 2011. Notably, the LP expects the deal to be "immediately accretive to Partnership cash flows and earnings." We believe this transaction illustrates TRP's seldom appreciated financial flexibility and the potential movement to becoming increasingly capital efficient. TRP's US asset base could translate into further asset dropdowns to TCPLP resulting in greater capital efficiency and more growth for the MLP."

Funding the future: "In our view, this transaction should greatly reduce any market concerns about TransCanada tapping the equity markets in the near-term. We believe this announcement may mark the beginning of a new pace of growth for TC Pipelines, LP in which TRP is the general partner and holds a 38.2% interest. Over time, that growth should enhance returns and provide greater flexibility for TRP."

Investment themes: "We believe the company's asset base is favourably positioned for a number of investment themes, including: increasing future volumes from Alberta's oil sands; Northern natural gas; and, low cost generation exposure in a number of structurally tight power markets."

Valuation: "Our Neutral rating and target price of C$42.00 is obtained from multiple approaches, including: a variety of multiples such as an implied 16.5x P/E multiple and an 11.1x EV/EBITDA multiple; a dividend yield of 4.0%; and, a DCF. We reiterate our Neutral rating."



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

Referenced Stocks: GTN

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