A month has gone by since the last earnings report for TC Energy (TRP). Shares have added about 2.9% 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 the most recent earnings report in order to get a better handle on the important catalysts.
TC Energy Q1 Earnings Beat, Revenues Down Y/Y
TC Energy Corporation reported first-quarter 2019 comparable earnings of 80 cents per share, surpassing the Zacks Consensus Estimate of 76 cents and the year-ago figure of 78 cents. The outperformance primarily stemmed from strength in the company’s projects in Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines and Liquids segments. Contribution from growth projects that came online during the quarter was also responsible for the strong bottom line.
Also, the company reported comparable EBITDA of C$2.4 billion during the quarter, up from C$2.1 billion in the year-ago period.
Comparable distributable cash flow (DCF) in the first quarter was C$1.6 billion (C$1.76 per share) compared with C$1.4 billion (C$1.63 per share) in the corresponding period of 2018.
However, TC Energy’s revenues of $2.6 billion were down more than 3% year over year due to weakness in the Power and Storage unit.
Canadian Natural Gas Pipelines: This segment recorded comparable EBITDA of C$556 million, reflecting an increase of 12.6% from the year-ago quarter. Depreciation recovery and higher rates from Canadian Mainline and NGTL systems, as well as strong customer demand across the network positively impacted the results.
U.S. Natural Gas Pipelines: Comparable EBITDA generated from this segment amounted to C$972 million, up 20.9% from a year ago. The upside can be attributed to higher contributions from Columbia Gas and Columbia Gulf growth projects on the back of record transportation volumes.
Mexico Natural Gas Pipelines: The segment’s comparable EBITDA in the quarter under review came in at C$146 million, lower than C$160 million recorded in the corresponding quarter of the last year. The decrease could be attributed to a fall in equity earnings from TC Energy’s investment in the Sur de Texas pipeline and decline in revenues from its systems amid changes in the timing of revenue recognition.
Liquids Pipelines: This unit generated comparable EBITDA of C$563 million in the fourth quarter, improving from the year-ago level of C$431 million. The increase was driven by rising volumes in the Keystone Pipeline System. Moreover, higher earnings from liquids marketing activities played a positive role.
Power and Storage: During the first quarter, the segment reported comparable EBITDA of C$151 million, down 14.2% year over year. The decrease can be attributed to sale of TC Energy’s interests in Cartier wind-power facilities and cost overruns associated with the natural gas-fired power plant in Ontario, Canada
Capital Expenditure and Balance Sheet
During the three months ended Mar 31, 2019, TC Energy’s capital investments totaled just over C$2 billion. As of the same date, the company had cash and cash equivalents of C$872 million, and a long-term debt of C$35.9 billion. Its debt-to-capitalization ratio was 53.4%.
TC Energy’s current portfolio includes around C$30 billion of accretive growth projects, of which roughly C$7-billion worth projects are expecting completion by year-end. TC Energy expects these growth projects to boost earnings and cash flow. This, in turn, will enable the company to generate annual dividend growth of 8-10% through 2021. As it is, TC Energy continues to advance the Keystone XL and Bruce Power life extension projects.
The company expects Coolidge generating station divestment to close by mid-2019, which will bring around $465 million. However, TC Energy has deferred the commercial start of the Napanee gas-fired plant into the second half of 2019 from the earlier target of second quarter. The postponement follows an equipment failure during the commissioning activities.
During the quarter under review, TC Energy brought approximately C$5.3 billion of projects online, which included the Mountaineer XPress, Gulf XPress and expansions of certain NGTL pipeline systems. The company is progressing with its recently announced its C$6.2-billion Coastal GasLink pipeline project, while it received Presidential Permit for the Keystone XL program in the first quarter. Finally, TC Energy completed commissioning on White Spruce pipeline during the period.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.42% due to these changes.
At this time, TC Energy has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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