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Analyst Actions: Credit Suisse Analyzes TransCanada Corp's Q2

Credit Suisse has lowered its estimates, but kept a Neutral rating and $42 target prices on TransCanada Corp. (TRP.TO).

Earnings review: "TransCanada reported headline Q2 2011 EPS of C$0.50 and comparable EPS of C$0.51. The comparable number was identical to our estimate, missed the Street's C$0.54 view and within the C$0.50-C$0.59 range. The pipeline and energy segments reported improved results versus Q2 2010 on a comparable EBIT basis. Energy segment strength came from the Eastern, US Power and Bruce power divisions. The Western segment was weaker compared to Q2 2010. From our view, TRP continues to make positive progress with a large capital program. With the long-cycle nature of our coverage universe, we do not place undue emphasis on quarterly results."

Notable items: "Some of the quarterly highlights include: (a) TRP continues to expect a decision regarding final regulatory approval for the US portion of Keystone XL by the end of 2011; (b) the energy segment's comparable EBIT increased from C$164m to C$193m in Q2 2011; (c) comparable natural gas pipeline EBIT increased from C$445m to C$586m in Q2 2011; (d) Western power's EBITDA decreased by 13% from C$85m in Q2 2010 to C$74m; (e) US power's EBITDA increased from C$69m in Q2 2010 to C$89m in Q2 2011; and, (f) the Bruce sales volume increased by roughly 4%."

Investment themes: "We believe TransCanada'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 11.0x EV/EBITDA multiple; a dividend yield of 4.0%; and, a DCF. Our 2011 EPS estimate is lowered to $2.20 (from $2.25). Our 2012/2013 EPS remains unchanged. 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 Nasdaq, Inc.

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

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