TransCanada gets a friendlier Congress but unwelcome attention

TransCanada Corp. (TSX—TRP), one of our Key stocks, is pleased with the outcome of the U.S. mid-term elections. That’s because the pro-business Republican party now controls both the Senate and the House of Representatives. This raises the chances of eventually winning approval for its Keystone XL Pipeline.

TransCanada President and chief executive officer Russ Girling says, “I was very pleased to see another vote in the House of Representatives in favour of Keystone XL.” He adds, “The Department of State’s Final Supplemental Environmental Impact Statement concluded denial of Keystone XL would not impact the amount of oil produced or refined in North America and they are right.”

Pipelines avoid the dangers of oil-by-rail

Mr. Girling noted other benefits of the Keystone XL pipeline: it would reduce oil-by-rail and the potential for disasters such as the explosion that destroyed the centre of Lac Mégantic; it would increase energy security for the U.S. and reduce imports of seven million barrels a day; it would create 9,000 direct jobs; and it would carry oil from Bakken in North Dakota to thirsty refineries on the Gulf Coast.

We previously reported that TransCanada was attracting unwanted attention from activist investors. Some wanted to shake up the company to raise its value. On November 17, Sandell Asset Management published an analysis.

TransCanada’s management writes, “We received materials from Sandell a few months ago containing a very similar and flawed analysis to the one that was published today. After careful review, and ongoing discussions with our other shareholders, TransCanada firmly believes that our current strategy best positions us to deliver long-term value to investors.” But the company’s earnings are sluggish.

In the first nine months of 2014, TransCanada generated ‘comparable earnings’ of $1.204 billion, or $1.70 a share. This was up by only 2.4 per cent from comparable earnings of $1.174 billion, or $1.66 a share, a year earlier.

In the latest quarter, the results were even weaker. TransCanada produced comparable earnings of $450 million, or 63 cents a share. This was unchanged from comparable earnings of $447 million, or 63 cents a share, a year earlier.

We advocated that you vote for U.S. activist-backed management at Canadian Pacific Railways. Its performance was lagging. That paid off handsomely. The presence of activist shareholders could spur TransCanada to do better.

TransCanada Corp. remains a buy for long-term gains plus high and rising dividends.


The Investment Reporter, MPL Communications Inc.
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