TRANSCANADA CORP. $50 (Toronto symbol TRP; Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 707.4 million; Market cap: $35.4 billion; Price-to-sales ratio: 3.8; Dividend yield: 3.8%; TSINetwork Rating: Above Average; www.transcanada.com) operates a 68,500-kilometre pipeline network that pumps natural gas from Alberta to Eastern Canada and the U.S. The company’s pipelines supply 20% of North America’s natural gas. In 2013, they provided 51% of TransCanada’s revenue and 53% of its earnings.
The company also owns or invests in power plants in Alberta, Ontario, Quebec and the northeastern U.S. In all, these facilities have over 11,800 megawatts of generating capacity. TransCanada’s electricity operations now supply 36% of its revenue and 30% of its earnings.
In 2011, the company started up its oil pipeline division. This business mainly consists of the Keystone pipeline, which pumps oil from Alberta to refineries in Illinois, and a distribution hub in Cushing, Oklahoma. Oil pipelines supply the remaining 13% of TransCanada’s revenue and 17% of its earnings.
The U.S. government has postponed a final decision on the company’s proposed Keystone XL pipeline until late 2014 or early 2015. Keystone XL would pump crude from Alberta’s oil sands to refineries on the U.S. Gulf Coast.
So far, TransCanada has spent $2.3 billion U.S. on this $5.4-billion U.S. project. If the U.S. cancels Keystone XL, the company could likely transfer some of its materials to other projects, offsetting any potential writedown.
This latest delay could also spur Canadian regulators to approve TransCanada’s Energy East pipeline, which would pump crude from Alberta to New Brunswick. This $12-billion (Canadian) project could start up in 2018.
Meanwhile, TransCanada earned $422 million, or $0.60 a share, in the three months ended March 31, 2014. These figures exclude unusual costs, such as gains and losses on contracts the company uses to lock in natural gas and power prices. The latest results are also up 14.1% from the $370 million, or $0.52 a share, it earned a year earlier.
Revenue rose 28.1%, to $2.9 billion from $2.25 billion. That’s partly because TransCanada started up new projects, including a pipeline that pumps oil from Cushing, Oklahoma, to the U.S. Gulf Coast. Colder-than-normal winter weather also increased demand for gas and electricity.
The company will probably earn $2.45 a share in 2014, and the stock trades at 20.4 times that forecast. The $1.92 dividend yields 3.8%.
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