Canaccord Lowers Rating on TransCanada to Hold
Analyst Juan Plessis at Canaccord on Thursday, April 17, 2014, downgraded TransCanada (NYSE: TRP) from Buy to Hold and maintained a $53 price target..
Shares of the company are up $0.02 or 0.04 percent to $46.72 per share.
The company cited share price strength as a reason why it lowered its rating. Shares of TRP have leaped about 17 percent in the past six motnhs alone and are now within three percent of the firm's $53.00 price target. Canaccord is also firm on a price target of $53.00 per share.
The firm continued, “The current riskadjusted return no longer meets our criteria for a BUY-rated stock and as a result, we are revising our rating to HOLD. Note that our target price is unchanged at C$53. TransCanada continues to advance its robust portfolio of growth projects. In 2014, earnings and cash flow should benefit from the recent start-up of the $2.3 billion Gulf Coast oil pipeline project, the recent and ongoing startup of solar power facilities, the expected commercialization of the Houston Lateral and the Tamazunchale Extension in Mexico. Earnings in 2015 should benefit from projects completed in 2014 as well as the planned startup of the Heartland Pipeline, TC Terminals and the Keystone Hardisty Terminal.”
Below are some investment risks that Canaccord noted:
- TransCanada does not operate the Bruce Power facility or the assets underlying the Sundance A or Sundance B power purchase arrangements, and failure by the operators of these facilities to operate at the cost or in the manner projected by TransCanada could negatively affect TransCanada's financial position.
- TransCanada does not own any of the power transmission lines over which its electricity is transmitted and delivered; any disruption in transmission could affect TransCanada's ability to deliver electricity and could have an adverse impact on TransCanada's financial results.
- The Canadian Mainline, the Alberta System, the BC System and the Foothills System natural gas pipelines are dependent on a number of factors including the level of exploration and development within the Western Canadian Sedimentary Basin; these factors include the price of natural gas, natural gas producers to delivering natural gas to the various pipeline systems, the development of northern gas reserves, and the regulatory environment for producers, transporters and consumers of natural gas.
- Changes in the regulation and the environmental laws of the natural gas transportation business and the power generation business could have a material impact on TransCanada's financial results.
The firm has also said that its price target is derived from a number of factors, valuation metrics, earnings and dividend yields, and earnings multiples. Canaccord's target represents a 2015 price to earnings ratio multiple of 20.4x. The firm is also valuing the company on the longer-term potential of existing assets and projects under construction.
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