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TransCanada (TRP) Hits Fresh High: Is There Still Room to Run?

Zacks Equity Research
UnitedHealth Group (UNH) closed at $249.64 in the latest trading session, marking a -1.05% move from the prior day.

Have you been paying attention to shares of TransCanada (TRP)? Shares have been on the move with the stock up 1.6% over the past month. The stock hit a new 52-week high of $46.32 in the previous session. TransCanada has gained 28.8% since the start of the year compared to the 15.5% move for the Zacks Oils-Energy sector and the 22.1% return for the Zacks Oil and Gas - Production and Pipelines industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on February 14, 2019, TransCanada reported EPS of $0.78 versus consensus estimate of $0.7.

For the current fiscal year, TransCanada is expected to post earnings of $2.91 per share on $10 billion in revenues. This represents a -2.35% change in EPS on a -5.45% change in revenues. For the next fiscal year, the company is expected to earn $2.96 per share on $10.65 billion in revenues. This represents a year-over-year change of 1.83% and 6.49%, respectively.

Valuation Metrics

TransCanada may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

TransCanada has a Value Score of C. The stock's Growth and Momentum Scores are B and C, respectively, giving the company a VGM Score of B.

In terms of its value breakdown, the stock currently trades at 15.8X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 9.1X versus its peer group's average of 9.8X. Additionally, the stock has a PEG ratio of 2.3. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, TransCanada currently has a Zacks Rank of #2 (Buy) thanks to rising earnings estimates.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if TransCanada passes the test. Thus, it seems as though TransCanada shares could still be poised for more gains ahead.

How Does TransCanada Stack Up to the Competition?

Shares of TransCanada have been rising, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also impressive, including Summit Midstream Partners, (SMLP), TC PipeLines, (TCP), and Crestwood Equity Partners (CEQP), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.

However, it is worth noting that the Zacks Industry Rank for this group is in the bottom half of the ranking, so it isn't all good news for TransCanada. Still, the fundamentals for TransCanada are promising, and it still has potential despite being at a 52-week high.


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TransCanada Corporation (TRP) : Free Stock Analysis Report
 
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