BMO Capital Markets has adjusted its outlook on TC Energy (NYSE:TRP: CN) (NYSE: TRP), reducing the stock's price target to C$55.00 from the previous C$65.00.
The firm sustained its Market Perform rating on the shares, despite the change in the price target.
The adjustment followed TC Energy's decision to spin off its Liquids Pipelines business into a new entity, South Bow Corporation (SOBO-TSX).
According to the analyst from BMO Capital, this strategic move repositions TC Energy as a company with higher growth prospects, increasing its EBITDA CAGR to 7% from the previous 6%.
Additionally, the company's portfolio now leans more heavily towards natural gas pipelines, which represent about 90% of its business, up from 80%, with the remaining balance in power.
The analyst noted that the revised price target reflects the changes brought about by the spinoff. Moreover, the Market Perform rating was maintained due to TC Energy's recent share price performance, which has been buoyed by improved sentiment towards natural gas pipelines and its relative return compared to other investments in the market.
In other recent news, TC Energy Corporation has been the subject of several notable developments. UBS has upgraded the company's stock rating to Buy, citing expectations of a more favorable valuation following a strategic spin-off. The spin-off, South Bow, is anticipated to reduce TC Energy's total debt by approximately $8 billion. UBS also expects TC Energy to benefit from the rising demand for data center power, with many of these centers located near the company's pipelines.
TC Energy and its partner, Northern New England Investment Company, have successfully completed the sale of the Portland Natural Gas Transmission System for a gross purchase price of $1.14 billion.
This move aligns with the company's strategic plan to reach a $3 billion asset divestiture target by 2024. The company has reported a 9% year-over-year increase in comparable EBITDA for the second quarter of 2024 and is set to introduce approximately $7 billion in assets in 2024 and $9 billion in 2025.
Other recent developments include the shareholder approval of the South Bow spinoff, a landmark Indigenous Equity Ownership agreement in Canada, and exploration of opportunities in the data center industry. However, earnings per common share are projected to be lower due to ongoing asset divestiture.
InvestingPro Insights
TC Energy's strategic decision to spin off its Liquids Pipelines business aligns well with several key metrics and trends highlighted by InvestingPro. The company's market cap stands at $50.21 billion, reflecting its significant presence in the energy infrastructure sector.
InvestingPro Tips reveal that TC Energy has maintained dividend payments for an impressive 52 consecutive years, and has raised its dividend for 23 consecutive years. This consistent dividend history underscores the company's financial stability and commitment to shareholder returns, which may be further enhanced by its renewed focus on natural gas pipelines.
The company's P/E ratio of 19.68 and adjusted P/E ratio of 15.96 for the last twelve months as of Q2 2024 suggest a reasonable valuation, especially considering its growth prospects. TC Energy's revenue growth of 8.89% over the same period, coupled with a strong EBITDA growth of 9.49%, aligns with the analyst's projection of increased EBITDA CAGR following the spinoff.
Moreover, TC Energy's stock has shown a robust performance, with a 55.1% total return over the past year and is currently trading near its 52-week high. This performance supports the BMO Capital analyst's observation about improved sentiment towards natural gas pipelines.
For investors seeking more comprehensive analysis, InvestingPro offers 10 additional tips for TC Energy, providing deeper insights into the company's financial health and market position.
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