Is TC Energy A Good Buy After Its Q2 2021 Report?

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TC Energy Corporation is a Canada-based North American energy infrastructure company operating across Canada, the United States, and Mexico. The company is considered one of the best players in the North American energy infrastructure sector. Its functions are mainly based across three core business lines: Natural Gas Pipelines, Liquids Pipelines, and Energy. Using a network of 93,400 km natural gas pipelines TC Energy transports natural gas from supply basins to local distribution companies, power generation plants, industrial facilities, interconnecting pipelines, LNG export terminals, and other businesses.

The energy sector has a history of ups and downs. Due to this volatility, it is always wise to invest in stocks that have a good track record. TC energy, one of the top players in this sector, can be the perfect stock for the ones intending to venture into this volatile industry. The company’s recent second-quarter financials also proved the same.

The company has come out with its second-quarter financials recently. The main highlights observed from the statements are as follows:

Financial Highlights

  • TC Energy achieved a net attributable income of $982 million or $1 per share this quarter while a net income of $1.3 billion or $1.36 per share was achieved for the same period in 2020. This indicates net income has declined by almost 25%. However, one must remember these earnings figure has been derived after considering a $2 million impairment charge for Keystone in this quarter and a $408 million gain in the prior year’s quarter from the partial sale of Coastal GasLink LP.

  • Excluding the one-time items, the comparable earnings grew by almost 21%. Comparable earnings for this quarter were $1 billion or $1.07 per common share against the $863 million or $0.92 per common share achieved in 2020.

  • Overall revenue for the second quarter also increased by 3% to $3.18 billion from $3.09 billion.

  • Comparable EBITDA (earnings before interest, tax, depreciation, and amortization) for the quarter was up by $47 million to $2.2 billion in this quarter compared to the same period last year.

Operational Highlights

  • TC Energy’s earnings have been impacted by a $2.2 billion after-tax asset impairment charge because of the Keystone XL crude oil pipeline project. Additionally, the company has continued advancing its $21 billion secured capital program and has already advanced $1.4 billion in various growth projects.

  • The company also partnered with Pembina for jointly developing in Alberta a carbon transportation and sequestration system. This development is going to help Canadian companies achieve net-zero carbon emission targets in the coming days.

  • The VR enhancement project has also been sanctioned by the company. This project aims at improving reliability and lowering emissions at a cost of $700 million. The company intends the project to become functional by the second half of 2025.

Some Important Updates

  • The company has stated that due to scope changes, permit delays, and impacts from COVID-19, it still expects there might be an increase in the cost of its 670-km (420-mile), 2.1-bcfd Coastal GasLink natural gas pipeline project, delivering Alberta production to the 14-million tonne/year LNG Canada liquefaction plant in Kitimat, BC.  It has been also expressed that the project might get delayed because of the same reason.

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  • The company’s construction of the 261-mile, 886-MMcfd Villa de Reyes gas pipeline in Mexico has been delayed because of the pandemic. TC Energy expects the construction to be completed by the first half of 2022.

  • TC Energy has issued several long-term debts. These include $750 million of three-year floating-rate medium-term notes due in June 2024 bearing floating rate, $500 million of 10-year fixed-rate medium-term notes due in June 2031 bearing interest at 2.97%, and $250 million of 26-year fixed-rate medium-term notes due in September 2047 bearing interest at 4.33%. Additionally, it had also redeemed $500 million of Series 13 preferred shares in May by utilizing proceeds from the junior subordinated debt offering completed in March.

Conclusion

As the oil and natural gas prices have been on a rise, the companies in the energy sector are having a good time. The rise in oil demand as the economy has started re-opening is one of the chief contributors to such a rise in oil prices. Investors intending to profit from such a rebound may invest in stocks like TC energy without actually undertaking the direct producer risks.

But before investing in such an industry one should be well aware of the risks that are going to come from such an investment. However, it is also true that such risks associated with investing in volatile industries can be significantly reduced by investing in stocks that are well known for their good performance. TC energy with its massive influence across North America has gone on to become one of Canada’s strongest and well-known companies. Also, the company has a solid strong past record of providing attractive returns to its investors.

In recent times the stock had received a major blow when it was unable to obtain approval from the US President and its Keystone XL oil pipeline project had to be canceled following such revocation of such presidential permit. Although the company had claimed $15 billion under NAFTA to recover the economic damages following the cancellation the said event had hugely impacted the company’s earnings and the fact was evident from its second-quarter financials. Despite all that it can be ensured the stock is going to bounce back soon as it is in a very good position to capitalize on the rise in oil and gas demand.

Before the pandemic, TC Energy was trading at $75 while these days it is trading near $60. The stock is yet to recover from the pre-pandemic levels and therefore it is the perfect time to buy it while the price is still on the lower side. Investors intending to buy this stock at the current level would also be receiving a 5.76% dividend yield in addition to booking profits in the coming days as the stock continues to rise.

 

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