TransCanada Corporation TRP has been quite in favor with investors for long, courtesy of its consistent earnings record and robust outlook. The company’s third-quarter 2018 results marked a continuation of this trend, driven by strength in the company’s expansion projects in U.S. gas pipelines and liquids segments. Notably, the company beat earnings estimates in each of the trailing four quarters, with a positive earnings surprise of 19.1%. Given the company’s strong fundamentals as well as positive estimate revisions, it seems like this is the right time to add the stock to your portfolio.
Calgary, Alberta-based TransCanada is a premier energy infrastructure provider in North America. Established in 1951, the company is primarily focused on natural gas transmission through its 57,100-mile network of pipelines located in Canada, the United States and Mexico. TransCanada is also involved in other businesses, including power generation, natural gas storage and crude oil pipelines. It has a storage capacity of 653 billion cubic feet. It currently has a Zacks Rank #2 (Buy), which means that the company is poised to outperform the market.
What Makes the Stock a Solid Bet?
With around 95% of the company's cash flow coming from secure and regulated assets backed by long-term contracts, TransCanada is exposed to minimal commodity price exposure and volume risks. In other words, the core business of TransCanada provides for highly stable and predictable cash flows. In this context, we should remind investors that distributable cash flow in the third quarter of 2018 was C$1,413 million (C$1.56 per share) compared with C$1,170 million (C$1.34 per share) in the corresponding period of 2017, reflecting a 20.8% year-over-year increase.
Growth Projects Leading the Way to a Brighter Future
The strong inventory of near-to-medium-term growth projects should support continued gains in TransCanada’s earnings and cash flow. Its current portfolio includes around C$36 billion of accretive growth projects that are likely to be placed into service in the coming years. TransCanada expects projects worth approximately C$10 billion to come online in early 2019. Apart from these, the company is advancing more than C$20 billion of additional medium-to-longer-term projects, which will boost future prospects.
Lucrative Dividend Growth
TransCanada has a long and consistent dividend paying record, as it has increased dividend in each of the last 18 years. Looking at its dividend position, the company's current quarterly dividend of 69 Canadian cents leads to a payment of C$2.76 on an annualized basis, higher than 2017’s C$2.50. Investors will be happy to know that the company is targeting an annual dividend growth of 8-10% till 2021.
Positive Earnings Estimate Revisions
We believe that the positive trend of the company’s bottom line will continue in the coming quarters as well. Over the past 60 days, one analyst has upwardly revised earnings estimates for the fourth quarter of 2018. The Zacks Consensus Estimate for the fourth quarter has been revised upward from 70 cents per share to 72 cents, which is 10.8% higher than the year-ago figure of 65 cents. Moreover, for the full year of 2018, the bottom line is expected to increase 18.5% to $2.82 per share.
The above-mentioned reasons make us believe that TransCanada is well positioned to witness persistent growth and is likely to continue its robust earnings trend for many more quarters to come.
Looking for More Trending Picks?
Investors interested in the energy sector can also opt for other top-ranked stocks as given below:
Buenos Aires, Argentina-based Transportadora de Gas del Sur S.A. TGS is engaged in natural gas transportation and distribution businesses. Its bottom line for full-year 2018 is expected to grow more than 16% year over year. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Findlay, OH-based MPLX LP MPLX is a midstream energy infrastructure provider. Its bottom line for the full year of 2018 is expected to surge more than 130% year over year. It currently has a Zack Rank #2.
Den Helder, the Netherlands-based Frank's International N.V. FI is a provider of engineered tubular services to the oil and gas industry. Its bottom-line growth for full-year 2018 is anticipated at more than 31% year over year. It currently has a Zack Rank #2.
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