TransCanada Corp Strikes New Yr High as Credit Suisse Analyzes its Q1

Credit Suise has a Neutral rating and $42 target price, but raised its estimates on TransCanada Corp. (TRP.TO) after its recent Q1 result. TransCanada has struck a new year high of $41.40 today.

Earnings review: "TransCanada reported headline Q1 2011 EPS of C$0.59 and comparable EPS of C$0.61. The comparable figure slightly beat our and the Street's C$0.60 views and fell within the C$0.52-C$0.64 range. Both the pipeline and energy segments reported improved results versus Q1 2010 on a comparable EBIT basis. Energy segment strength came from the Western, Eastern and Bruce power divisions, but US Power and natural gas storage were weaker. Notably, TRP is eliminating the discount and treasury share issuance for the Dividend Reinvestment and Share Purchase Plan highlighting a stronger capital position. With the long-cycle nature of our coverage universe, we do not place undue emphasis on quarterly results."

Notable items: Some highlights include: (a) TRP expects a final regulatory decision for the Keystone XL's US portion by the end of 2011; (b) the energy segment's comparable EBIT increased from C$169m to C$254m in Q1 2011; (c) comparable pipeline EBIT increased from C$515m to C$552m in Q1 2011; (d) Western power's EBITDA increased by 185% from C$42m in Q1 2010 to C$120m; (e) US power's EBITDA slightly decreased from C$64m in Q1 2010 to C$62m in Q1 2011; and, (f) the Bruce sales volume increased by roughly 12%.

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: "We are raising our 2011 EPS estimate to C$2.32 from C$2.31. 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. We reiterate our Neutral rating."

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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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