Claim Membership Credit
TransCanada Corporation (TSX:TRP)(NYSE:TRP), one of North America’s largest owners and operators of energy infrastructure, watched its stock jump 5% in Thursday’s trading session in response to its fiscal 2017 fourth-quarter and full-year earnings results that morning. Let’s break down the results and the fundamentals of its stock to determine if we should be long-term buyers.
The results that ignited the rally
Here’s a chart of eight of the most notable statistics from TransCanada’s three-month period ended December 31, 2017, compared with the same period in 2016:
| Metric | Q4 2017 | Q4 2016 | Change |
| Revenues | $3,617 million | $3,635 million | (0.5%) |
| Comparable earnings before interest, taxes, depreciation, and amortization (EBITDA) | $1,903 million | $1,890 million | 0.7% |
| Comparable earnings | $719 million | $626 million | 14.9% |
| Comparable earnings per share (EPS) | $0.82 | $0.75 | 9.3% |
| Net cash provided by operations | $1,390 million | $1,575 million | (11.7%) |
| Comparable funds generated from operations | $1,450 million | $1,425 million | 1.8% |
| Comparable distributable cash flow (DCF) | $1,268 million | $1,251 million | 1.4% |
| Comparable DCF per share | $1.45 | $1.50 | (3.3%) |
And here’s a chart of eight notable statistics from TransCanada’s 12-month period ended December 31, 2017, compared with the same period in 2016:
| Metric | Fiscal 2017 | Fiscal 2016 | Change |
| Revenues | $13,449 million | $12,547 million | 7.2% |
| Comparable EBITDA | $7,377 million | $6,647 million | 11.0% |
| Comparable earnings | $2,690 million | $2,108 million | 27.6% |
| Comparable EPS | $3.09 | $2.78 | 11.2% |
| Net cash provided by operations | $5,230 million | $5,069 million | 3.2% |
| Comparable funds generated from operations | $5,641 million | $5,171 million | 9.1% |
| Comparable DCF | $4,963 million | $4,482 million | 10.7% |
| Comparable DCF per share | $5.69 | $5.91 | (3.7%) |
Dividend hike? Yes, please!
In the press release, TransCanada announced a 10.4% increase to its quarterly dividend to $0.69 per share, and the first payment at this increased rate will come on April 30 to shareholders of record at the close of business on March 29.
Is the stock still a buy?
TransCanada delivered a record financial performance in 2017, driven by a “strong performance” of its existing assets as well as the commissioning of $5 billion worth of growth projects during the year, so I think the 5% pop in its stock was warranted; furthermore, I think the stock still represents a great long-term investment opportunity for two fundamental reasons.
First, it’s undervalued based on its growth. Even after the 5% pop in its stock, TransCanada trades at just 18.2 times fiscal 2017’s comparable EPS of $3.09 and only 17 times the consensus estimate of $3.31 for fiscal 2018, both of which are inexpensive given its current double-digit percentage earnings-growth rate and its estimated 7.5% long-term earnings-growth rate.
Second, it’s a dividend aristocrat. TransCanada now pays an annual dividend of $2.76 per share, which brings its yield up to 4.9%. Investors must also note that the dividend hike it just announced has it on track for 2018 to mark the 18th straight year in which it has raised its annual dividend payment, and that it has a dividend-growth program in place that calls for annual growth of 8-10% through 2021, making it one of my favourite dividend stocks in the energy sector today.
TransCanada’s stock still sits more than 13% below its 52-week high of $65.18 reached back in November, but I think it will head significantly higher in the weeks, months, and years ahead, so Foolish investors should strongly consider making it a long-term core holding.
