Shares of TC Energy (TSX:TRP) slumped this week after the energy infrastructure company agreed to sell 40% of its interest in Columbia Gas Transmission and Columbia Gulf Transmission pipelines. The deal came in at US$5.2 billion, helping the company reduce debt to continue their growth plan. But do analysts agree with the decision and mark it as a buy?
What happened
TC Energy stock made the announcement in a “culmination of an asset divestiture program” announced last fall. The company stated it was going to sell off at least US$5 billion in non-core assets by the end of 2023. This latest sale went just beyond that mark at US$5.2 billion.
The goal is to help the company finance its “larger expansion goals,” while not taking on large amounts of debt. Management stated they were pleased they are now ahead of their target. Yet it remains the operator of the pipelines as they work with Global Infrastructure Partners.
Rising costs for TC Energy stock’s Coastal GasLink project have been the catalyst it seems. The project is under construction in B.C. Now more than 90% complete, the project looks to cost a total of US$14.5 billion. This is higher than earlier estimates at US$11.2 billion.
Analysts weigh in
Although this deal achieved the US$5 billion goal of sales in non-core assets, it came at another cost. That’s through corporate complexity, as TC Energy stock is now in a joint venture over the divested asset. While debt will likely improve, there is likely to be a pause on the sale of assets until next year. This comes as the company looks to finish its Coastal GasLink project.
So while the sale met goals and was a step in the right direction, more work needs to be done. There is less debt, sure, but more risks with so much depending on the Coastal GasLink project, as costs could continue to rise.
Furthermore, analysts were unimpressed with the sale price, as the value of the Columbia sale came in lower than estimates. That being said, analysts didn’t necessarily think the stock should be a sell. In fact, some still marked it as an outperformer with the GasLink coming up and lower debt on the books. The main point to note is that they suggested it be a long-term hold.
Bottom line
TC Energy stock dropped only slightly this week. Yet it still trades in value territory for those willing to pick it up and wait for the GasLink to be up and running. It now offers an incredible 7.31% dividend yield as well. Its metrics are in value territory, too. The stock currently trades at 32.3 on the relative strength index, marking it in oversold territory. It does trade at a higher price-to-earnings (P/E) ratio of 30.7, which is above the five-year average of a 23 P/E as of writing. TRP stock also looks fairly valued when looking at its price-to-sales (P/S) and enterprise value over earnings before interest and taxes (EV/EBIT), at 3.3 and 24.2, respectively.
Taking all that into consideration, as debt lowers and the company gets their GasLink online in the next year, investors could be picking up TC Energy stock at a deal right now. There will merely be some patience needed along the way, helped along by a high dividend yield.
