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TC PipeLines (TCP) Down 7.4% Since Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for TC PipeLines, LP (TCP - Free Report) . Shares have lost about 7.4% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is TCP due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

First-Quarter 2018 Results

TC PipeLines reported first-quarter 2018 earnings of $1.32 per unit, surpassing the Zacks Consensus Estimate of $1.08. The addition of equity earnings from Iroquois and higher earnings from Great Lakes on the back of lower pipeline integrity costs drove the results. Further, the bottom line witnessed an increase from $1.05 per unit recorded in the year-ago quarter.

Quarterly transmission revenues of $115 were also nominally higher than $112 million recorded in the first quarter of 2017.

Distribution & Cash Flow

TC PipeLines announced first-quarter 2018 cash distribution of 65 cents per unit, lower than the year-ago quarter level of 94 cents. The cash distribution also dipped 35% from the prior-quarter figure of $1.00 per unit. The cutback in the distribution seeks to enable the partnership to strengthen its balance sheet by utilizing the cash to repay debts.

Notably, this is the 76th consecutive quarterly distribution paid by the partnership and is payable on May 15, 2018 to its unit holders of record at the close of business on May 9.

The partnership's total distributable cash flow increased more than 21.7% year over year to $112 million, primarily driven by the addition of equity interest in Iroquois.

TC PipeLines distributed $76 million in the reported quarter compared with $68 million in the year-ago quarter.

Pipeline Systems' Performance

Great Lakes: The partnership generated earnings of $24 million from equity investment, higher than the prior-year quarter’s earnings of $17 million.

Northern Border Pipeline: Equity earnings at this pipeline totaled $17 million, lower than the prior-year quarter’s earnings of $19 million.

Iroquois: Equity earnings at this pipeline amounted to $18 million. TC PipeLines completed the acquisition of 49.3% interest in Iroquois from TransCanada on Jun 1, 2017.

Expenses

Operation and maintenance expenses increased to $16 million in the quarter compared with $14 million in the prior-year quarter. The general/administrative and property charges came in at $1 million compared with the year-ago figure of $2 million. The property taxes and depreciation charges remained unchanged from the year-ago quarter levels at $7 million and $24 million, respectively. Financial charges in the quarter came in at $23 million, witnessing a year-over-year increase of 35.3%.

Balance Sheet

As of Mar 31, 2018, TC PipeLines had cash and cash equivalents of $68 million. The partnership had long-term debt of $2,332 million, representing a debt-to-capitalization ratio of 67.5%

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. There have been two revisions higher for the current quarter compared to one lower.

TC PipeLines, LP Price and Consensus

 

TC PipeLines, LP Price and Consensus | TC PipeLines, LP Quote

VGM Scores

At this time, TCP has an average Growth Score of C. Its Momentum is doing a lot better with an A. The stock was also allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and momentum investors while growth investors may want to look elsewhere.

Outlook

Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Interestingly, TCP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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