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
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

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

energy oil gas
Dividend Stocks

2 High-Yield Energy Stocks to Buy as Recession Approaches

Energy stocks such as TC Energy and Canadian Natural Resources allow investors to generate income even in recessionary times.

Read more »

green power renewable energy
Dividend Stocks

3 Top Dividend Stocks to Drive Your Passive Income

These three high-yielding, safe dividend stocks could boost your passive income.

Read more »

Dial moving from 4G to 5G
Tech Stocks

TFSA Investors: 2 Canadian Stocks With Unbelievable Staying Power 

Amid economic uncertainty, investors look for stocks that can thrive in any crisis and grow long term. Here are two…

Read more »

protect, safe, trust
Dividend Stocks

TFSA Wealth: How to Earn $363 in Monthly Passive Income for Life

Canadian investors can harness the power of the TFSA to generate steady tax-free passive income for decades.

Read more »

Canadian Dollars
Dividend Stocks

TFSA Millionaire: How to Turn $40,000 Into $1.2 Million for Retirement

Here's how TFSA investors are using the power of compounding to buy top Canadian dividend stocks to build retirement wealth.

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Superb Income and Growth Stocks for Every Portfolio

The market is full of superb income and growth stocks, but not all belong in your portfolio. Here are three…

Read more »

stock market
Stocks for Beginners

Worried About Stagflation? 2 Canadian Stocks for All Market Cycles 

Stagflation delays economic recovery. You can keep your portfolio stagflation ready with these Canadian stocks that are suitable for all…

Read more »

exchange traded funds
Stocks for Beginners

Why BMO’s Global Infrastructure ETF Is the Only TSX Stock You Need

BMO Global Infrastructure Index ETF (TSX:ETF) is the only TSX stock you need for passive income, solid cash flow, and…

Read more »