TC PipeLines Might Benefit from TransCanada in 2017



One-year returns

TC PipeLines (TCP) rose 25% over the past year. In comparison, midstream energy peers Enbridge Energy Partners (EEP), Western Gas Partners (WES), and American Midstream Partners (AMID) rose 19%, 46%, and 135%, respectively, during the same period.

The Alerian MLP ETF (AMLP), which holds the top infrastructure MLPs, rose ~19% over the past year.

The above graph shows the one-year stock price of TC PipeLines along with its 50-day and 200-day moving averages. Currently, TC PipeLines is trading 9% above its 50-day moving average and 8% above its 200-day moving average.

TC PipeLines stock mostly traded above its 200-day moving average since April 2016. The stock temporarily fell below the 200-day average in November and December. However, it crossed above both of the averages in mid-December. It has risen 10% since then.

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TransCanada’s MLP strategy

TransCanada (TRP), TC PipeLines’ sponsor, announced an agreement to acquire all of the outstanding publicly-held common units of Columbia Pipeline Partners (CPPL) in November 2016. It followed TransCanada’s acquisition of Columbia Pipeline Group in March 2016.

It leaves TransCanada with a single MLP, TC PipeLines, which it describes as a “core element of TransCanada’s future strategy.” Drop-downs to TC PipeLines are expected to be a key way of funding TransCanada’s $25 billion Canadian dollars of capital projects over the next three years.

TC PipeLines was formed by TransCanada in 1998. Through its subsidiaries, TransCanada owns ~26.6% of TC PipeLines’ common units and all of its Class B units and incentive distribution rights. It effectively owns 2% general partner (or GP) interest in TC PipeLines. TC PipeLines owns or has interests in energy infrastructure pipelines regulated by the Federal Energy Regulatory Commission. The pipelines are capable of moving 9.1 billion cubic feet per day of natural gas.

In this series

In this series, we’ll analyze TC PipeLines’ price targets, its leverage, capital expenditure, and distribution growth. We’ll also analyze its valuation relative to its peers. Let’s start with TC Pipelines’ price targets and analysts’ recommendations.


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