The macroeconomic uncertainties are driving the TSX Composite Index downward in 2023. On the one hand, high inflationary pressures and rapidly increasing interest rates are taking a toll on investors’ sentiments. On the other hand, continued geopolitical tensions, including the Russian invasion of Ukraine and the recently emerged Israel-Hamas conflict, keep commodity markets highly volatile, affecting the movement of Canadian energy stocks.
In this article, we’ll take a closer look at one such beaten-down energy stock, TC Energy (TSX:TRP) and discuss where its share prices could be in five years from now.
TC Energy stock
TC Energy is a Calgary-based energy infrastructure and storage company with a wide network of liquids and gas pipelines and energy storage across North America. Besides its home market, the company generates a large portion of its revenue from the United States, which accounted for more than half of its total revenue last year. TRP stock currently has a market cap of $49.8 billion, as it trades at $47.89 per share after losing 11.3% of its value so far in 2023. At this market price, the stock offers a very attractive 7.7% annualized dividend yield.
Notably, this is the second consecutive year when TC Energy stock is trading on a bearish note, making it one of the most ignored Canadian energy stocks lately, in my opinion. Let me explain why.
Why TRP stock looks undervalued
Even as the company continued to post positive top- and bottom-line growth in 2022, TRP stock slipped by 8.2%. To give you an idea, its revenue that year grew positively by 11.9% YoY (year over year) to $15 billion with the help of full-year implementation of higher transportation rates and strong demand for its pipeline systems. Despite macroeconomic challenges, the company managed to maintain positive growth in its adjusted 2022 earnings, which stood at $4.30 per share. But TRP stock slipped more than 8% for the year due mainly to a broader market selloff, making it look undervalued.
TC Energy’s financial growth in the first half of 2023 has also remained healthy, registering an 8.7% YoY increase in its total revenue to $7.8 billion. Also, its adjusted earnings in the first of rose 2.4% YoY to $2.17 per share. However, weakening broader market sentiments have driven its share prices down by well over 10% year to date.
Where will TC Energy stock be in five years?
It’s true that macroeconomic challenges might continue to keep the Canadian stock market volatile in the near term, which may affect the TC Energy stock’s price movement in the short term. Nonetheless, the company’s continued focus on advancing its coastal gas link and southeast gateway projects can pay off well by boosting its financial performance in the coming years.
In July 2003, TC Energy revealed its intentions to spin off its liquids pipelines business by splitting its key business units into two separate publicly listed business entities, more focused on their respective business domains. With this move, the company aims to unlock incremental growth and enhance efficiencies. The company also highlighted that the combined dividends of two separate companies will still sustain TC Energy’s long-term dividend-growth outlook.
The separation is expected to be completed in the second half of 2024. While it’s nearly impossible for anyone to predict where exactly the share prices of TC Energy’s two separate companies will be five years from now, the strong fundamentals of both of its business segments should help them rally in the long run. Given that, long-term investors still have the opportunity to take advantage of the recent dip in TRP stock by buying it at a bargain now to hold for the long term.
