TransCanada (TRP) Q4 Earnings Beat, Revenues & DCF Jump Y/Y

TransCanada Corporation (TO:TRP) 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 stemming from 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.

Segmental Information

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 ANR and Great Lake pipeline systems also supported the upside.

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, owing to higher revenues from its pipelines and changes in the timing of revenue recognition.

Liquids Pipelines: This unit generated comparable EBITDA of C$538 million in the fourth quarter, improving from the year-ago level of C$401 million. The increase was driven by rising volumes in the Keystone Pipeline System. Also, earnings from 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 fourth quarter, the segment reported comparable EBITDA of C$167 million, down 22% year over year. The decrease can be attributed to lower earnings from Bruce Power, which stemmed from increased outage days, in turn resulting in lower volumes.

Dividend, Capex and Balance Sheet

The company declared a quarterly dividend of 75 Canadian cents per share for first-quarter 2019, reflecting 8.7% increase from the prior figure of 69 Canadian cents. Notably, this marked the 19th consecutive dividend hike by the company.

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%.

Key Updates

TransCanada’s current portfolio includes around C$36 billion of accretive growth projects, of which nearly 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 earnings and cash flow. This, in turn, will enable the company to generate annual dividend growth of 8-10% through 2021.

The company expects 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 and the commissioning process is underway. It expects the facility to come online in the second quarter.

TransCanada is on track with its C$6.2-billion Coastal GasLink pipeline project, which was announced in the fourth quarter. The company is exploring joint venture options for the project. This quarter, the company announced C$1.5-billion NGTL 2022 expansion project. It also announced that offshore construction of the Sur de Texas pipeline project was finished last May. It is expected to come online in the beginning of second-quarter 2019.

During this quarter, TransCanada divested its stake in Cartier Wind power units for around C$630 million.

Zacks Rank and Stocks to Consider

TransCanada currently carries a Zacks Rank #3 (Hold). Investors interested in the energy sector can opt for some better-ranked stocks as given below:

San Antonio, TX-based NuStar Energy L.P. (NYSE:NS) is a midstream energy company. For 2019, its bottom line, which has witnessed three upside revisions over the past 30 days, is expected to grow 64.2% year over year. The company currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Madrid, Spain-based Repsol (MC:REP), S.A. (OTC:REPYY) is an integrated energy company. Its bottom line for 2019 is expected to increase 13.7% year over year. The company delivered average positive earnings surprise of 9% in the trailing four quarters. The stock currently has a Zacks Rank #2.

Enbridge Inc. (NYSE:ENB) is a Calgary, Canada-based energy infrastructure provider. The company delivered average positive earnings surprise of 33.2% in the trailing four quarters. It currently has a Zacks Rank #2.

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