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On Jul 2, Zacks Investment Research upgraded natural gas transporter TC PipeLines L.P. (TCP - Analyst Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

We expect TC PipeLines’ purchase of additional stakes in two major U.S. gas systems from parent TransCanada Corp. (TRP - Snapshot Report) to be immediately accretive to earnings and distributable cash. We also like TC PipeLines’ steady cash-flow generating pipeline assets, which provide stability and financial capacity to deliver cash distributions in a disciplined manner.

Detailed Analysis

With its investments in low-risk energy infrastructure assets, TC PipeLines has been able to provide stable cash distributions. Over the last few years, the partnership has consolidated its business through a combination of organic efforts and accretive acquisitions.

Of particular significance is its stake in the Northern Border Pipeline, a key player in natural gas transportation from western Canada to the U.S Midwest. Northern Border’s market share position enables it to maintain strong relationships with shippers. Coupled with continued robust demand for Canadian gas in the U.S., this should help the partnership with re-contracting its pipeline capacity.

TC PipeLines’ recently concluded deal to increase its stake in two important U.S. gas pipelines – Gas Transmission Northwest LLC and Bison Pipeline LLC – to 70% from the pre-existing 25% is expected to improve the partnership’s distributable cash flow immediately. The transaction will also lower its relative exposure to the Great Lakes, which is presently experiencing earnings and cash flow inconsistency.

Finally, TC PipeLines has established a track record of providing stable and growing cash distribution to unit holders. The partnership has a proven history of distribution growth with 13 hikes in as many years.

Other Stocks to Consider

In addition to TC PipeLines, there are certain other energy pipeline partnerships like Atlas Pipeline Partners L.P. (APL - Snapshot Report) and Rose Rock Midstream L.P. (RRMS - Snapshot Report) that offer value and are worth buying now. All these firms sport a Zacks Rank #1 (Strong Buy).

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