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Why Is TC Energy (TRP) Up 1.2% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for TC Energy (TRP). Shares have added about 1.2% in that time frame, underperforming 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 drivers.

TC Energy Q3 Earnings Beat, Revenues Down Y/Y

TC Energy Corporation reported third-quarter 2019 earnings of 79 cents per share that surpassed the Zacks Consensus Estimate as well as the year-ago figure of 76 cents. This robust performance is primarily driven by a solid progress in the company’s projects at Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Liquids Pipelines plus the Power and Storage segments. Contributions from growth projects worth $8.2 billion that came online in 2019 so far also aided the earnings uptick.

Moreover, the company’s comparable EBITDA of C$2.3 billion in the quarter was up from the number in the same period last year.

Comparable distributable cash flow (DCF) of C$1.6 billion (C$1.78 per share) in the third quarter rose from C$1.4 billion (C$1.56) in the corresponding period of 2018.

However, TC Energy’s revenues of C$3.13 billion dipped 0.72% year over year.

Segmental Information

Canadian Natural Gas Pipelines recorded comparable EBITDA of C$572 million, reflecting a 9.6% rise from the year-ago quarter. This upside was attributable to impressive contribution from Canadian Natural Gas Pipelines resulting from the Canadian Mainline recovery of increased depreciation and higher incentive earnings in 2019.

U.S. Natural Gas Pipelines’ comparable EBITDA amounted to C$796 million, up 11.3% from the prior-year level. This upside can be attributed to better contributions from Columbia Gas and Columbia Gulf growth projects that commenced operations in the second quarter.

Mexico Natural Gas Pipelines’ comparable EBITDA of C$153 million was essentially in line with 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$575 million in the third quarter, improving from the year-ago level of C$467 million. Rising volumes in the Keystone Pipeline System led to this uptrend. Moreover, earnings growth from liquids marketing activities was a key catalyst.

Power and Storage posted comparable EBITDA of C$252 million, up 21.7% year over year on the back of earnings improvement from Bruce Power owing to a hike in realized sales price and higher output.

Capital Expenditure and Balance Sheet

During the three months ended Sep 30, 2019, TC Energy’s capital investments totaled C$1.8 billion. On the same date, the company had cash and cash equivalents of C$2.2 billion and long-term debt of C$36.4 billion. Its debt-to-capitalization ratio was 53.1%.

Key Updates

This leading North American energy infrastructure company is advancing secured growth projects worth C$30-billion, which are likely to come online by 2023. Moreover, it already invested nearly C$9 billion in the entire program, with approximately C$2.5-billion funded projects of the same, expected to be completed by this year-end.

The company anticipates these growth projects to boost earnings and cash flow. This, in turn, will generate 8-10% annual dividend growth through 2021. TC Energy continues to advance the Keystone XL and Bruce Power life extension projects.

During the quarter, the company completed the partial monetization of its Northern Courier pipeline in Alberta along with the sale of certain Columbia Midstream assets in the Appalachian region. It further entered into an agreement to sell its natural gas fired power plants in Ontario

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -6.25% due to these changes.

VGM Scores

Currently, TC Energy has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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