TC PipeLines, LP (TCP - Free Report) looks compelling at the moment. Given the partnership’s strong fundamentals as well as positive estimate revisions, it seems like this is the right time to add the stock to your portfolio. Moreover, the lack of takeaway capacity in Northern America created high demand for pipelines in the region, enabling the mid-cap master limited partnership, which possess strong energy infrastructure businesses, to earn huge profits. This makes the stock more attractive and thus substantiates its Zacks Rank #1 (Strong Buy).
Now let’s focus on some other important factors that make the partnership an investor favorite.
Impressive Midstream Portfolio
TC Pipelines’ enviable position as a supplier of gas from some of the most important shale basins in the United States — including Utica and Marcellus — provides it with ample growth opportunities. The partnership also continues to benefit from its stake in the Northern Border Pipeline, which is the primary transporter of gas from the low-cost Western Canada Sedimentary Basin to the U.S. Midwest.
Moreover, prospects for energy infrastructure throughout North America remain exciting, with the requirement of supporting producers in the growth of shale plays, especially in regions where there is a severe lack of facilities. This creates exciting opportunities for pipeline firms like TC PipeLines, which is poised to capture the economic benefit of this trend.
Strong Cash Flow Generation
TC PipeLines has a long history of generating strong distributable cash flow that allows it to provide stable cash distributions to its unitholders. In the first nine months of 2018, the partnership’s free cash flow increased 17% to $303 million, reflecting strength in its operations. Apart from providing cash distributions and funding organic growth opportunities, the cash flow generating ability should allow the partnership to reduce debt burden.
Favorable Current Ratio & Coverage
Notably, TC PipeLines has a current ratio of 1.02 compared with collective average of 0.73 of the industry it belongs to. It means that the partnership has enough liquidity to meet all its current liabilities. Moreover, TC PipeLines’ distribution coverage ratio of approximately 1.5 times indicates that the partnership has enough money left after paying the distribution.
Estimates Head Northbound
TC PipeLines’ earnings estimates for full-year 2018 and 2019 have moved up 4.4% and 5.9%, respectively, in the past 30 days, reflecting the optimistic outlook of analysts. The Zacks Consensus Estimate for full-year earnings is pegged at $4.03, depicting year-over-year growth of 27.5%, and the same for fourth-quarter 2018 of 82 cents reflects year-over-year improvement of 6.5%.
Notably, in the last four reported quarters, the partnership delivered average positive earnings surprise of 15.6%. This trend is expected to continue in the coming quarters as well.
Good Industry Outlook
The industry, to which TC PipeLines belongs to, currently has a Zacks Industry Rank of 65 out of 257 (top 25%). Studies have shown that 50% of a stock's price movement is directly tied to the performance of the industry group, of which it is part of. In fact, an average stock in a strong group is likely to outperform a great stock in a poor industry. Therefore, taking industry performance into account becomes a necessary measure.
Other Stocks to Consider
Investors interested in the energy sector can opt for other top-ranked stocks given below:
Houston, TX-based Enterprise Products Partners L.P. (EPD - Free Report) holds a Zacks Rank #1. The company’s earnings for 2018 are expected to surge more than 36% year over year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Rome, Italy-based Eni S.p.A. (E - Free Report) has a Zacks Rank #1. Its earnings for 2018 are expected to grow more than 100% from the 2017 level.
Houston, TX-based Shell Midstream Partners, L.P. (SHLX - Free Report) carries a Zacks Rank #2 (Buy). The company’s profits for 2018 are expected to grow nearly 20% from 2017.
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