U.S. Markets close in 4 hrs 43 mins

Here's Why You Should Grab TC PipeLines (TCP) Stock Now

Zacks Equity Research
1 / 2

Here's Why You Should Grab TC PipeLines (TCP) Stock Now

TC PipeLines' (TCP) low-risk business, bottom-line prospects and better-than-industry performance are likely to help the company grow further.

With increasing production and lack of takeaway capacity in Northern America, the energy sector is facing a bottleneck situation, which has resulted in high demand for pipelines in the region. Among the numerous potential gainers in this market situation, adding Calgary, Alberta-based TC PipeLines, LP TCP to your portfolio will be a promising investment move at the moment. This mid-cap master limited partnership, possessing strong energy infrastructure businesses in Northern America, currently carries a Zacks Rank #1 (Strong Buy).

What Makes the Stock a Solid Bet

Low-Risk Business:

TC PipeLines owns stakes in natural gas transportation assets, which generate stable, recurring and low-risk earnings and cash flows. Its stake in the Northern Border Pipeline — which is a key link in natural gas transportation from western Canada to the U.S. Midwest — is of particular significance. Growth prospects for energy infrastructure across entire North America remain encouraging, with the requirement to support producers in the growth of shale plays, especially in regions where there is a severe lack of facilities. TC PipeLines is well poised to capture the economic benefit of this trend, leading to potential growth opportunities.

Bottom-Line Prospects:

TC PipeLines reported second-quarter 2018 earnings of $1.00 per unit, increasing from 73 cents per unit recorded in the year-ago quarter and also beating the Zacks Consensus Estimate of 76 cents per share. In the last four reported quarters, the partnership delivered an average positive earnings surprise of 12%. We believe the trend will follow in the coming quarters as well.

Over the past 30 days, four analysts have increased their earnings estimates for 2018, while none have decreased the same for TC PipeLines. The Zacks Consensus Estimate for the current quarter has been revised upward from $3.45 per share to $3.75, which is 18.7% higher than 2017 figure of $3.16.

Acquisition Story:

The partnership closed the purchase of a 49.3% interest in Iroquois Gas Transmission System, LP from TransCanada together with the latter's 11.8% remaining interest in PNGTS last June. The move enabled TC PipeLines to diversify its cash flow sources. In the last reported quarter, incremental contracting from C2C contracts of PNGTS increased the partnership’s revenues. Equity earnings from Iroquois in the second quarter also pushed the partnership’s results well ahead of the year-ago results. TC PipeLines is expected to benefit from the acquisition in the coming years, by adding additional long-term contracts to its portfolio.

Impressive Stock Performance and Good Industry Outlook:

In the past three months, the stock has surged 30.6%, outperforming the 7.6% growth of the industry it belongs to.

The industry, to which TC PipeLines belongs, currently has a Zacks Industry Rank of 115 out of 256 (top 45%). Studies have shown that 50% of a stock's price movement is directly tied to the performance of the industry group that it’s in. In fact, an average stock in a strong group is likely to outperform a great stock in a poor industry. Therefore, taking industry performance into account becomes a necessary measure.

Other Stocks to Consider

Investors interested in the energy sector can also opt for other top-ranked stocks like McDermott International, Inc. MDR, Subsea 7 S.A. SUBCY and Canadian Natural Resources Limited CNQ. While McDermott and Subsea sport a Zacks Rank #1, Canadian Natural carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based McDermott is an equipment provider for energy companies. The company’s top line for 2018 is likely to improve 145% year over year. In the last four reported quarters, the company delivered an average positive earnings surprise of 101.7%.

Luxembourg-based Subsea is an oilfield service providing company. In the last four reported quarters, the company delivered an average positive earnings surprise of 318.6%.

Calgary, Canada-based Canadian Natural Resources is an upstream energy company. The company’s top line for 2018 is anticipated to improve 41.3% year over year, while its bottom line is expected to increase more than 200%.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
TC PipeLines, LP (TCP) : Free Stock Analysis Report
 
McDermott International, Inc. (MDR) : Free Stock Analysis Report
 
Canadian Natural Resources Limited (CNQ) : Free Stock Analysis Report
 
Subsea 7 SA (SUBCY) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.