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TC Energy (TRP) Up 4.4% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for TC Energy (TRP). Shares have added about 4.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TC Energy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

TC Energy Q2 Earnings Meet, Revenues Up Y/Y

TC Energy Corporation reported second-quarter 2019 earnings of 75 cents per share, in line with the Zacks Consensus Estimate. Meanwhile, the bottom line came ahead of the year-ago figure of 66 cents. This robust performance is primarily driven by strength in the company’s projects at U.S. Natural Gas Pipelines, Liquids Pipelines plus the Power and Storage segments. Contribution from growth projects that came online during the quarter also aided the uptick in earnings.

Moreover, the company reported comparable EBITDA of C$2.3billion during the quarter, up from the same period last year.

Comparable distributable cash flow (DCF) of C$1.5 billion (C$1.64 per share) in the second quarter rose from C$1.3 billion (C$1.46) in the corresponding period of 2018.

Moreover, TC Energy’s revenues of C$3.4 billion increased 5.5% year over year.

Segmental Information

Canadian Natural Gas Pipelines recorded comparable EBITDA of C$528 million, reflecting a 3.1% dip from the year-ago quarter. The metric was affected by a decline in flow-through taxes on the NGTL system, partly offset by an improved depreciation recovery on the back of higher rates and incentive earnings from the Canadian Mainline system.

U.S. Natural Gas Pipelines’ comparable EBITDA amounted to C$857 million, up 21.7% from the prior-year level. This upside can be attributed to higher contributions from Columbia Gas and Columbia Gulf growth projects that commenced operations in the second quarter.

Mexico Natural Gas Pipelines’comparable EBITDA of C$141 million was essentially flat with C$142 million in the year-earlier quarter. Contribution from a strong U.S. dollar was offset by changes in the timing of revenue recognition.

Liquids Pipelines unit generated comparable EBITDA of C$582 million in the second quarter, improving from the year-ago level of C$413 million. Rising volumes in the Keystone Pipeline System led to this uptrend. Moreover, higher earnings from liquids marketing activities and contribution from the new White Spruce pipeline played an instrumental role.

Power and Storage posted comparable EBITDA of C$219 million, up 8.4% year over year on the back of earnings growth from Bruce Power owing to a hike in realized sales price.

Capital Expenditure and Balance Sheet

During the three months ended Jun 30, 2019, TC Energy’s capital investments totaled C$1.6 billion. On the same date, the company had cash and cash equivalents of C$666 million and long-term debt of C$35.1 billion. Its debt-to-capitalization ratio was 52.6%.

Key Updates

TC Energy’s current portfolio includes around C$32 billion of accretive growth projects, of which roughly C$7-billion worth of programs are expecting completion by this year-end. The company anticipates these growth projects to boost earnings and cash flow. This, in turn, will enable a generation of 8-10% annual dividend growth through 2021. TC Energy already continues to advance the Keystone XL and Bruce Power life extension projects.

During the quarter, the company closed the sale of Coolidge generating station for US$448 million and agreed to offload some Columbia Midstream properties for US$1.3 billion. However, TC Energy’s construction activities on the Coastal GasLink pipeline project are underway.

The reported quarter also saw TC Energy starting the White Spruce pipeline and certain NGTL System projects. The company has been successful in converting Louisiana XPress and Grand Chenier XPress into secured projects at a combined cost of approximately US$600 billion and jettisoned an 85% stake in its Northern Courier Pipeline for a consideration of C$1.15 billion.

How Have Estimates Been Moving Since Then?

Estimates revision followed a downward path over the past two months.

VGM Scores

Currently, TC Energy has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

TC Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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