What to Expect When TransCanada Reports Earnings This Week

With the Keystone XL pipeline on the ropes, the company needs to find new expansion avenues.

| More on:
The Motley Fool

TransCanada (TSX: TRP)(NYSE: TRP) is set to release its quarterly earnings on Friday. Most investors are concentrating on another disappointing delay of the company’s Keystone XL pipeline. The company needs to prove to shareholders that it can find alternative expansion avenues.

Let’s take an early look at what has been happening at TransCanada over the past three months and what we’re likely to see in its upcoming report.

Stats on TransCanada

Analyst EPS Estimate

$0.59

Change From Year-Ago EPS

$0.52

Revenue Estimate

$2.60B

Change From Year-Ago Revenue

-15.60%

Earnings Beats in Past 4 Quarters

1

Source: Yahoo! Finance

Can TransCanada deliver for shareholders this quarter?

Analysts have becoming increasingly pessimistic in recent months about TransCanada’s earnings prospects, cutting their full-year forecast by a dime to $2.46 per share. But this has done little to discourage dividend-hungry investors, given that the stock is up 9% over the past three months.

TransCanada’s controversial Keystone XL pipeline received another piece of bad news this quarter. Earlier this month the U.S. State Department announced that it will hold off on making a final approval decision on the 830,000 barrels per day pipeline proposal until the project clears legal hurdles in Nebraska. The news likely pushes back any decision on the project until after the November midterm elections.

Predictably, this sent TransCanada shares plunging. However, the far more worrying development is that Canada’s energy sector barely flinched on the announcement. Five years ago, Keystone was seen as critical to the development of the oil sands. Today, the country’s top producers are finding other ways to get their product to market.

Suncor (TSX: SU)(NYSE: SU) has cobbled together a system of rail transit and space on new and existing pipelines. This has resulted in impressive financial results. On Monday, the oil sands behemoth posted record operating profits and cash flow of $1.73 billion and $2.88 billion respectively.

Cenovus (TSX: CVE)(NYSE: CVE) is betting big on crude by rail to work around pipeline logjams. The company is leasing 200 rail cars with plans to begin shipping 30,000 barrels of oil per day of bitumen by the end of the year. Cenovus is also investigating use of dilutent recovery units in order to improve the economics of rail transit further.

TransCanada is watching a major opportunity slip through its fingers. While Keystone would certainly be a positive development for the industry, it’s no longer critical. The industry is moving on.

TransCanada needs to find other avenues for expansion. However, thanks to booming production in Alberta and shale output in the United States, oil pipelines will remain the company’s key earnings driver for the foreseeable future.

Investors should listen for a status update at the company’s proposed Energy East pipeline. This project involves converting 4,500 kilometres of it Canadian Mainline pipe from natural gas to crude oil to reach refineries in Montreal, Quebec City, and Saint John. The project could begin deliver 1.1 million barrels per day of Western Canadian crude, single handily replacing Keystone, as early as 2017.

TransCanada is also building out its Alberta pipeline system. This is a collection of smaller routes that feed into energy hubs like Edmonton. The company has $3.4 billion in secured projects to connect growing oil sands production to 2.5 million barrels per day of long haul export pipelines.

Foolish bottom line

In TransCanada’s earnings this week, watch for discussion on alternative growth opportunities for the company. With the odds of a Keystone approval growing longer with each passing month, TransCanada will need to find new pipeline projects to fuel its earnings growth.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Robert Baillieul has no positions in any of the stocks mentioned in the article. 

More on Investing

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »

Businessman holding AI cloud
Tech Stocks

Could Investing $20,000 in Nvidia Make You a Millionaire?

Nvidia stock has made investors millionaires in the last 10 years. Is it too late to invest to become a…

Read more »

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

money cash dividends
Stocks for Beginners

Have $500? 3 Absurdly Cheap Stocks Long-Term Investors Should Buy Right Now

If you're looking for cheap stocks, these three have a huge future ahead of them, all while costing far less…

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »