It has been about a month since the las t earnings report for TransCanada (TRP). Shares have added about 6.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is TransCanada due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recen t earnings report in order to get a better handle on the important drivers.
TransCanada Q4 Earnings Beat, Revenues & DCF Surge Y/Y
TransCanada Corporation reported fourth-quarter 2018 comparable earnings of 78 cents per share, comfortably surpassing the Zacks Consensus Estimate of 70 cents. The outperformance primarily stemmed from strength in the company's projects in Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines and Liquids segments. Further, the bottom line improved from the year-ago figure of 65 cents per share, primarily due to the profits stemmed from the intra-Alberta pipelines. Moreover, TransCanada's revenues of $2,954 million improved from the year-ago figure of $2,848 million.
Also, the company reported comparable EBITDA of C$2,453 million during the quarter, up from $1,903 million incurred in the year-ago period.
Comparable distributable cash flow (DCF) in the fourth quarter was C$1,727 million (C$1.89 per share) compared with C$1,272 million (C$1.45 per share) in the corresponding period of 2017.
Canadian Natural Gas Pipelines : This segment recorded comparable EBITDA of C$818 million, reflecting an increase of 44% from the year-ago quarter. Higher contribution from Canadian Mainline and NGTL System positively impacted the results.
U.S. Natural Gas Pipelines: Comparable EBITDA generated from this segment amounted to C$812 million, up 34% from a year ago. The upside can be attributed to higher contributions from Columbia Gas, ANR and Columbia Gulf growth projects. Higher contract sales from the ANR and Great Lake pipeline systems also supported the rise.
Mexico Natural Gas Pipelines: The segment's comparable EBITDA in the quarter under review came in at C$152 million, higher than C$116 million recorded in the corresponding quarter of the last year on stronger revenues from the pipelines and changes made in timing of revenue recognition.
Liquids Pipelines: This unit generated comparable EBITDA of C$538 million in the fourth quarter, improving from the year-ago quarter's C$401 million. The increase was driven by rising volumes in the Keystone Pipeline System. Also, earnings from the intra-Alberta pipelines, which came online in the second half of 2017, supported the year-over-year improvement. Moreover, higher earnings from liquids marketing activities played a positive role.
Energy: During the third quarter, the segmen t report ed comparable EBITDA of C$167 million, down 22% year over year. The decrease can be attributed to the lower earnings from Bruce Power, stemmed from increased outage days resulting in lower volumes.
Dividend, Capex and Balance Sheet
The company declared a quarterly dividend of 75 Canadian cents per share for the first-quarter 2019, reflecting 8.7% increase from prior dividend of 69 Canadian cents. Notably, the company hiked its dividends for 19 consecutive years.
During the three months ended Dec 31, 2018, TransCanada's capital investmentstotaledC$2,944 million. As of the same date, the company had cash and cash equivalents of C$446 million, and a long-term debt of C$36,509 million. Its debt-to-capitalization ratio was 54.1%.
TransCanada's current portfolio includes around C$36 billion of accretive growth projects, of which around C$9 billion worth projects are commissioning or nearing completion. The company's Keystone XL and Bruce Power life extension projects are carefully being advanced. TransCanada expects these growth projects to boost its earnings and cashflow. This will, in turn, enable the company to provide an annual dividend growth of 8-10% through 2021.
The company expects its Coolidge generating station divestment to close by mid-2019, which will bring around $465 million. The Napanee natural gas-fired power plant's construction is complete as the commissioning process is on the way. The company expects the facility to come online in the second quarter.
TransCanada is going ahead with its C$6.2 billion Coastal GasLink pipeline project, announced in the fourth quarter. The company is exploring for joint venture options for the project. Also, this quarter, the company announced the C$1.5 billion NGTL 2022 expansion project. The company also announced that the offshore construction for the Sur de Texas pipeline project was finished last May. It is expected to come online in the beginning of the second quarter of 2019.
During this quarter, TransCanada divested its stake in the Cartier Wind power units for around C$630 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, TransCanada has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision indicates a downward shift. Notably, TransCanada has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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