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TransCanada (TRP) Gains Early on Positive Mention

August 25, 2014 8:43 AM EDT

TransCanada (NYSE: TRP) is positive early Monday following a mention in Barron's over the weekend.

Barron's suspects shares could move from $51 up through $69 over the next few years. Many investors have been focused on the ever-delayed Keystone XL pipeline, which will bring crude from Alberta, Canada, to the U.Sk., but one of the company's overlooked assets is its $30 billion backlog.

Shares go for about 23 times FY14 post-tax profit -- rich compared with segment peers -- and yield is 3.4 percent, versus an average 5.0 percent for U.S. MLPs. However, management sees EBITDA doubling over the next decade which using 2013 as a base. The stock goes for around 12 times FY15 EBITDA estimates, compared with 16 times for a name like Kinder Morgan (NYSE: KMI).

Another appealing aspect is the potential for larger dividends. While TransCanada's yield is at 3.4 percent, the company only pays out about one-third of its cash flow, versus U.S. MLPs dishing out the vast majority to investors.

Some market watchers also see the potential for an activist investor to push TransCanada for a larger dividend or to spin pipeline and power-generation assets.

TransCanada is working on the $11 billion Energy East project, its largest capital expenditure. That will convert about 1,850 million of unused gas pipeline to transport crude.

TransCanada also holds a controlling interest in TC PipeLines (NYSE: TCP), which yields 6 percent and hasn't been active lately due to light analyst coverage and relatively slow growth versus MLP peers. The company plans to 'drop down' certain U.S. pipeline assets to TC PipeLines in the coming years.

Shares of TransCanada are up 2 percent.



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