Shares of TC PipeLines LP (TCP) hit a 52-week high of $56.58 on Aug 20, 2014. In fact, the pipeline operator has seen its stock price climb over 18% since the beginning of the year.
What is Driving the Stock?
TC Pipelines owns stake in natural gas transportation assets, which generate stable, continuous and low-risk earnings and cash flows. These quality assets have led to consistent growth for the partnership as indicated by the 12.07% positive average earnings surprise for the trailing four quarters.
Moreover, TC PipeLines’ steady cash-flow generating pipeline assets provide stability and financial capacity to deliver cash distributions in a disciplined manner. During the second quarter, TC Pipelines announced cash distribution of 84 cents per unit or $3.36 per unit annualized, representing a 3.7% sequentially increase. It also marked the 15th consecutive yearly distribution increase for the partnership.
Additionally, the partnership continues to leverage its relationship with parent company, TransCanada Corp. (TRP) to make ‘drop-down’ transactions. The addition of quality assets to its portfolio should further enhance TC Pipeline’s performance.
However, the partnership’s high natural gas exposure raises its sensitivity to gas price fluctuations. Furthermore, with natural gas prices remaining subdued, transportation rate cuts could hamper earnings and cash flows for the partnership.
This accounts for TC PipeLines’ current Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Stocks to Consider
With TC PipeLines shares trading at a 52-week high, further upside from here may be limited. Meanwhile, one can consider better-ranked players from the same industry like Sunoco Logistics Partners L.P. (SXL) and Valero Energy Partners LP (VLP). Both these stocks sport a Zacks Rank #1 (Strong Buy).
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