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TC Energy (TRP) Down 2.9% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for TC Energy (TRP). Shares have lost about 2.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is TC Energy due for a breakout? 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 Energy Q1 Earnings Beat Estimate, Revenues Down Y/Y

TC Energy Corporation’s first-quarter 2020 earnings of 88 cents per share came ahead of the Zacks Consensus Estimate of 74 cents as well as the year-ago figure of 80 cents. This outperformance is primarily attributable to a solid progress in the company’s projects at the U.S. Natural Gas Pipelines, Canadian Natural Gas Pipelines and Mexico Natural Gas Pipelines apart from the Power and Storage segments. Contributions from projects worth C$8.7 billion that came online in 2019 also aided the bottom line.

Moreover, TC Energy’s comparable EBITDA of C$2.5 billion in the quarter was up 6.4% from C$2.38 billion reported in the same period last year. Further, management maintained that with 95% of the company’s comparable EBITDA coming from long-term, fixed-rate contracts, it is mostly insulated from the short-term price and throughput fluctuations of the underlying commodities.

The energy infrastructure provider’s revenues of C$3.42 billion dipped 2% year over year due to lower contribution from the Liquids Pipelines segment.

Segmental Information

Canadian Natural Gas Pipelines recorded comparable EBITDA of C$597 million, reflecting a 7.4% rise from the year-ago quarter. This upside was attributable to a strong contribution from Canadian Natural Gas Pipelines owing to the improved rate base earnings, flow-through depreciation and financial charges on the NGTL System from added services.

U.S. Natural Gas Pipelines’ comparable EBITDA amounted to C$1.03 billion, up 6.2% from the prior-year level. This upside can be attributed to better contributions from Columbia Gas and Columbia Gulf growth projects.

Mexico Natural Gas Pipelines’ comparable EBITDA of C$269 million improved from the year-earlier quarter of C$146 million. This upturn was primarily on the back of solid earnings from investment in the Sur de Texas pipeline.

Liquids Pipelines unit generated comparable EBITDA of C$445 million in the first quarter, declining from the year-ago level of C$563 million. Tumbling volumes in the Keystone Pipeline System caused this downtrend. Moreover, weak earnings from liquids marketing activities was a prime reason.

Power and Storage posted comparable EBITDA of C$194 million, up 28.5% year over year on the back of earnings improvement from Bruce Power owing to a hike in realized sales price and higher output.

Capital Expenditure and Balance Sheet

As of Mar 31, 2020, TC Energy’s capital investments totaled C$1.99billion. On the same date, the company had cash and cash equivalents worth C$1.89 billion and long-term debt of C$34.8 billion. Its total debt to total capital was 50.6%.

Key Updates

On Mar 31, management at this leading North American energy infrastructure player stated that it will forge ahead with construction of Keystone XL, indicating an additional investment of approximately $8 billion. The construction work was initiated last month and the pipeline is projected to come online in 2023. As a result of higher spending on Keystone XL, this year’s total capital expenditure is anticipated to be $10 billion compared with the prior year’s $7.5 billion.

TC Energy's board of directors announced the second-quarter 2020 dividend of 81 Canadian cents per share (or C$3.24 cents annually).

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -5.63% due to these changes.

VGM Scores

Currently, TC Energy has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 these revisions indicates a downward shift. 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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