TransCanada Corp. $39 - Toronto symbol TRP

TRANSCANADA CORP. $39 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 540 million; Market cap: $21.1 billion; SI Rating: Above average) operates a 59,000-km network of natural gas pipelines in Canada and the United States. This business supplies 70% of its profit. The remaining 30% comes from its electrical power operations. TransCanada aims to cut its reliance on its regulated pipeline business with new growth projects. These include the Keystone pipeline, which will transport crude oil from Alberta’s oil sands to the U.S. Midwest. Initial deliveries should begin in late 2009. The company recently agreed to sell half of Keystone to U.S.-based oil giant Conoco- Phillips for an undisclosed sum. TransCanada had earlier granted ConocoPhillips this option as part of a long-term shipping agreement. That will cut the risk of this project, as well as its projected cost of $3 billion. TransCanada is also expanding its gas storage operations. In early 2007, it spent $3.4 billion U.S. for natural gas pipelines and storage facilities in Texas and other U.S. states. Demand for storage services is growing as more producers prefer to temporarily store their excess gas instead of selling it when prices are low. Thanks to acquisitions and strong growth at its existing operations, TransCanada’s revenue in 2007 rose 17.3%, to $8.8 billion from $7.5 billion in 2006. Earnings before one-time items grew 18.9%, to $1.1 billion from $925 million. TransCanada issued new shares to help pay for its purchases. Consequently, per-share earnings rose just 10.0%, to $2.09 from $1.90. Cash flow per share rose 1.8%, to $4.93 from $4.84. The strong results let TransCanada increase its dividend 5.9%. The new annual rate of $1.44 a share yields 3.7%. The stock trades at 17.2 times its likely 2008 earnings of $2.27 a share. TransCanada is a buy.