Why Is TC PipeLines, LP (TCP) Up 8.9% Since Last Earnings Report?

A month has gone by since the last earnings report for TC PipeLines, LP (TCP). Shares have added about 8.9% 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 PipeLines, LP 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 drivers.

TC PipeLines Q4 Earnings Beat on Higher Equity Income

TC PipeLines reported fourth-quarter 2018 earnings of $1.06 per unit, surpassing the Zacks Consensus Estimate of 83 cents. Further, the bottom line increased from 77 cents per unit recorded in the year-ago quarter. Higher equity earnings, especially from the Great Lakes, and increased revenues drove the results.

Quarterly transmission revenues of $220 million were 101.8% higher than $109 million recorded in the fourth quarter of 2017. The increase can be attributed to higher contribution from PNGTS, GTS and Bison Pipelines.

Distribution & Cash Flow

TC PipeLines announced fourth-quarter 2018 cash distribution of 65 cents per unit, in line with the prior-quarter figure but lower than the year-ago level of $1.00. The lowered distribution will enable the partnership to strengthen its balance sheet by utilizing the cash to repay debts.

Notably, this marks the 79th consecutive quarterly distribution paid by the partnership. The distribution was paid on Feb 11, 2019 to its unitholders of record as of Feb 1, 2018.

The partnership's total distributable cash flow increased 31.9% year over year to $95 million, primarily driven by higher earnings, along with contribution from PNGTS and Great Lakes pipelines.

In the reported quarter, TC PipeLines distributed $47 million in cash compared with $74 million in the year-ago period.

Pipeline Systems' Performance

Great Lakes: The partnership generated earnings of $14 million from equity investment, higher than the prior-year quarter’s $7 million.

Northern Border Pipeline: Equity earnings at this pipeline totaled $19 million compared with the prior-year level of $17 million.

Iroquois: Equity earnings at this pipeline amounted to $11 million, lower than the prior-year figure of $13 million. TC PipeLines completed the acquisition of 49.3% interest in Iroquois from TransCanada on Jun 1, 2017.

Expenses

Operation and maintenance expenses were $19 million in the quarter, in line with the year-ago period. General/administrative expenses totaled $2 million compared with the year-ago figure of $3 million. Property taxes and depreciation charges remained unchanged from the year-ago level at $7 million and $24 million, respectively. Financial and other charges in the quarter came in at $23 million, flat with the year-ago period.

Balance Sheet

As of Dec 31, 2018, TC PipeLines had cash and cash equivalents of $33 million. The partnership had a long-term debt of $2,072 million, representing a decline from the year-ago figure of $2,211 million.

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 -9.92% due to these changes.

VGM Scores

At this time, TC PipeLines, LP has a strong Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. 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 this revision indicates a downward shift. Notably, TC PipeLines, LP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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