TC Pipelines TCP is well poised to grow on the back of its enviable position as a supplier of gas from some of the most important shale basins in the United States including the Utica and the Marcellus, which provide it with ample growth opportunities. However, its leveraged balance sheet is concerning.
This master limited partnership with interests in eight pipeline systems is expected to see bottom-line growth even during an extremely volatile year as this. The Zacks Consensus Estimate for TC Pipelines’ 2020 earnings per unit indicates 1.34% growth over the 2019 reported number.
Courtesy of solid prospects, this currently Zacks Rank #2 (Buy) stock is worth betting on at the moment. A glance at the partnership’s price trend shows that the stock has gained 11% in the quarter-to-date period.
Let’s assess the factors why TC PipeLines has enough momentum to carry on with.
Stellar Q3 Performance
TC PipeLines delivered third-quarter earnings of 90 cents a unit, beating the Zacks Consensus Estimate of 72 cents and also increasing 18.4% from the year-ago quarter’s 76 cents, attributable to higher revenues of PNGTS on the back of its extension projects, and lower operating and maintenance expenses.
Northward Estimate Revisions
The direction of estimate revisions serves as a key indicator of stock movement. The Zacks Consensus Estimate for TC PipeLines’ 2020 earnings has been revised 3.6% upward over the past 60 days while the same for 2021 has moved 3.2% north.
Natural gas transportation assets of TC PipeLines generate stable, recurring and low-risk earnings as well as cash flows. Highly contracted nature of its pipeline assets ensures steady returns. TC PipeLines' impressive and regionally-diverse portfolio of midstream assets including Northern Border, Great Lakes and PNGTS pipelines among others is driving the firm’s growth. It benefits from strong demand for its Northern Border Pipeline, which is operating at high levels of throughput and is booked through the end of this decade.
What’s further encouraging is that the firm is progressing quite well on its brownfield expansions, such as Portland XPress and Westbrook Xpress, which will further boost its earnings and cash flows. Other organic growth projects including North Baja and Iroquois and GTN development opportunities are also expected to solidify the firm’s prospects, going forward.
TC PipeLines’ impending merger with TC Energy TRP is expected to be accretive to its unitholders. This strategic move will provide the firm’s unitholders with 0.70 common shares of TC Energy for each unit held, which accounts for a 19.5% premium on its closing price as of Oct 2, 2020 prior to its initial acquisition announcement.
Considering TC Pipelines’ long-term pipeline contracts, strong market position and continued demand in WCSB and Bakken, the partnership is likely to maintain its growth momentum in the quarters ahead. Pipeline pinch throughout North America creates exciting opportunities for pipeline firms like TC PipeLines that are poised to capture the economic benefits of this trend.
Other Key Picks
Some other top-ranked stocks in the energy space are Hess Midstream Partners LP HESM and China Petroleum & Chemical Corporation SNP, each presently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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China Petroleum & Chemical Corporation (SNP) : Free Stock Analysis Report
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