TRANSCANADA CORP. $44 - Toronto symbol TRP

TRANSCANADA CORP. $44 (Toronto symbol TRP; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 704.0 million; Market cap: $31.0 billion; Price-to-sales ratio: 3.6; Dividend yield: 4.0%; TSINetwork Rating: Above Average; www.transcanada.com) is mainly known for its natural gas and oil pipelines. However, the company continues to expand its electrical-power business. TransCanada’s 19 power plants in Canada and the U.S. now supply 30% of its revenue.

The company has agreed to build a new gas-fired power plant near Napanee, Ontario, as part of a deal with the Ontario Power Authority (OPA), which regulates the province’s power producers. This new plant will replace a plant that TransCanada previously agreed to build in Oakville, Ontario.

The OPA will pay TransCanada $210 million for the turbines and other equipment originally earmarked for the Oakville plant. The company will also receive $40 million to cover the costs of equipment that it can’t move to the new site. However, the OPA will pay TransCanada lower rates for the new plant’s power when it starts up in 2017.

To put these amounts in context, the company earned $300 million, or $0.43 a share, in the three months ended June 30, 2012. That’s down 15.5% from $355 million, or $0.51 a share, a year earlier. Lower earnings from its gas pipelines and U.S. power plants were the main reason for the decline. However, revenue rose 0.5%, to $1.81 billion from $1.80 billion, because the company started up new oil pipelines The stock trades at 21.1 times the $2.09 a share that TransCanada will probably earn in 2012. The $1.76 dividend yields 4.0%.

TransCanada is a buy.

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