TransCanada CorporationTRP

Morningstar Rating

Stock Research and Analysis

by Avi Feinberg

In the face of declining natural gas production in Alberta, TransCanada is traversing North America to pursue pipeline and power generation projects. Pipelines should continue to deliver the bulk of cash flows, but TransCanada's power generation business Read more

Bulls Say

The pipeline business tends to be very stable, and its significant barriers to entry represent a sustainable competitive advantage. Portions of TransCanada have a wide economic moat.

We expect strong demand for natural gas in North America over the long term, and TransCanada remains well-positioned to benefit from this with unparalleled market share in Canada.

TransCanada could help transport natural gas from northern Canada and Alaska as well as build liquefied natural gas import terminals in the northeastern U.S., both potential high-growth areas.

TransCanada stock yields 3.4% at our fair value, and the company has paid a regular dividend for more than 40 years. The dividend appears safe from being cut. Read more

Bears Say

TransCanada operates in regulated industries, and regulators frown upon excess profitability.

The company's pipeline operations depend heavily on natural gas produced in Alberta. Declining production creates an uphill battle for maintaining volume in its pipelines over the long term.

There's no guarantee that any of the proposed natural gas pipelines will be built from northern Canada or Alaska. Significant regulatory and environmental hurdles exist, in addition to the pipelines' enormous cost.

The company's power-generation operation carries a narrow moat at best. Most of its power plants are located in deregulated utilities markets, which exposes the plants to competition. Read more

Strategy

TransCanada focuses on two main businesses: pipelines and power generation. In order to improve profitability, the company will look to avoid regulated earnings limits by negotiating rates directly with Read more

Management

Harold Kvisle was appointed president and CEO in early 2001 after joining TransCanada in 1999. In 2008, Kvisle earned CAD 3.1 million in salary and bonus and remaining share-based, option, and pension compensation around CAD 5.4 million, putting his Read more

Profile

Calgary-based TransCanada is among the largest pipeline operators in North America. It owns close to 37,000 miles of natural gas pipelines, most of which transport gas from Read more

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