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Can TransCanada (TRP) Keep Earnings Streak Alive in Q4?

Zacks Equity Research

We expect TransCanada Corporation TRP to beat expectations when it reports fourth-quarter 2018 results on Feb 14, after market close.

In the preceding three-month period, the Calgary, Alberta-based energy infrastructure provider beat the Zacks Consensus Estimate by 28.81% on the back of expansion projects in U.S. gas pipelines and liquids segments.

As far as earnings surprises are concerned, the midstream player has an impressive record, having surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with average positive earnings surprise of 19.14%. This is depicted in the graph below.

TransCanada Corporation Price and EPS Surprise

TransCanada Corporation Price and EPS Surprise | TransCanada Corporation Quote

The Zacks Consensus Estimate for the quarter to be reported has moved north by 2 cents over the past 30 days to a profit of 70 cents per share. This reflects growth from the prior-year EPS of 65 cents.

Investors are keeping their fingers crossed and hoping that the company can continue winning ways by surpassing earnings estimates this time around too. Notably, our model indicates that TransCanada might beat on earnings in the fourth quarter.

Let’s delve deeper and take a look at the factors shaping up the upcoming results.

Why a Likely Positive Surprise?

Our proven model shows that TransCanada is likely to beat the Zacks Consensus Estimate in the quarter to be reported as it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.56%. This is because the Most Accurate Estimate is pegged 2 cents higher than the Zacks Consensus Estimate. A favorable Earnings ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: TransCanada currently has a Zacks Rank of 3, which, when combined with a positive ESP, makes us confident of an earnings beat.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

Factors at Play

The Canadian midstream giant boasts a diversified portfolio of U.S., Canadian and Mexican natural gas pipelines, as well as liquids pipelines. This mix of a midstream portfolio and stable energy business comprising power generation assets, backed by long-term contracts, generates a steady revenue stream for the company. As such, TransCanada is exposed to minimal commodity price exposure and volume risks. Around 85% of the firm’s total pipeline capacity is booked under pre-determined contracts, with another 15% capacity available for spot shipments that are utilized swiftly amid the lack of infrastructure in comparison with soaring output.

Increasing volumes from NGTL, Columbia Gas, Grand Rapids, Northern Courier and Keystone pipeline projects are likely to drive revenues and EBITDA margins of the company in the quarter to be reported. Markedly, with around C$36 billion of accretive growth projects that are likely to be placed into service in the coming years, TransCanada targets an annual dividend growth of 8-10% till 2021.

Other Stocks to Consider

TransCanada is not the only energy firm looking up this earnings season. Here are some other companies from the same space, which according to our model also have the right combination of elements to post an earnings beat in the to-be-reported quarter.

Concho Resources Inc. CXO has an Earnings ESP of +1.07% and a Zacks Rank #3. The company is set to release fourth-quarter earnings on Feb 19. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here .

Ensco plc ESV has an Earnings ESP of +2.63% and a Zacks Rank #3. The company is expected to release fourth-quarter earnings on Feb 25.

Cheniere Energy, Inc. LNG has an Earnings ESP of +84.51% and a Zacks Rank #3. The company is set to release fourth-quarter earnings on Feb 26.

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