Tuesday, April 1, 2014

TransCanada Corp 2

I own this stock of TransCanada Corp (TSX-TRP, NYSE-TRP). I bought the stock in 2000 at an opportune time. The company had been cutting their dividend payments in order to re-organize and get the company into shape for long term profitability. This company's stock fell hard because of this. People who depend on dividends for their income can be an unforgiving lot, and get really upset at company when a trusted company cuts dividends.

When I look at insider trading, I find $25.1M of insider selling and $25.1M of net insider selling. There is no insider buying. A lot of insiders have priced stock options and there seems to be an awful lot of outstanding stock options.. Directors have Rights Deferred Share Units and Rights Director Share Units which are stock option type vehicles.

There is some insider ownership with the CEO having shares worth around $6.5M, the CFO having shares worth around $0.6M and the Chairman having shares worth around $1.9M. In 2013, outstanding share were increase by 1.9M shares because of stock options. The book value of these options was $80M. This number of shares was worth around $96M at the end of 2013.

It would seem that in the last three years that outstanding shares have increased due to stock options and the amounts involved are substantial. However, I must admit that the amounts involved in all three years are still less than 1% of the market cap of this stock. In 2012, outstanding shares were increased by 1.6M shares with a book value or $58M and this number of shares having a value at the end of 2012 of $75M. In 2011, outstanding shares were increased by 2.3M shares with a book value or $64M and this number of shares having a value at the end of 2011 of $100.6M.

The 5 year low, median and high median Price/Earnings per Share Ratios are 18.18, 19.59 and 20.99. They were lower if you look at P/E over the past 10 years and the 10 year low, median and high median P/E Ratios are 14.70, 16.51 and 18.33. The current P/E Ratio is 20.29 based on a stock price of $50.33 and 2014 EPS estimate of $2.48. Based on what has been happening over the past 5 years the stock price might be considered to be reasonable, but it is very near the top of the reasonable range.

I get a Graham Price of $36.31. The 10 year low, median and high median Price/Graham Price Ratios are 1.07, 1.22 and 1.32. The current P/GRP Ratio is 1.39. This stock price tests suggests that the stock price is high.

I get a 10 year median Price/Book Value per Share Ratio of 2.00. I get a current P/B Ratio of 2.13 based on a stock price of $50.33 and a Book Value per Share of $23.62. It is nicer when the current P/B Ratio is lower than the 10 year P/B Ratio, but the current one is only 7% higher than the 10 year median P/B Ratios. This stock price test suggests that the stock price is reasonable.

The 5 year median dividend yield is 4.11% and the current dividend yield is 3.78%. It is better if the current dividend yield is higher than the 5 year median. However, the current dividend yield is only 7% lower than the 5 year median dividend yield. This stock price test suggests that the stock price is reasonable.

However, if you look at historical dividend yields, the current dividend yield is from 12% to 18% lower than the historical dividend yield. This stock price test suggests that on an historical dividend yield bases, the stock price is in the top of the reasonable range.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. The majority of the recommendations are in the Buy category and the consensus recommendations would be a Buy. The 12 month price target for this stock is $54.10. This implies a total return of 11.31% with 3.81% from dividends and 7.49% from capital gains. This is a decent return for a utility stock. However, these are only estimates as no one knows what could occur over the next year.

There is a positive report on this stock at Seeking Alpha by Heather Ingrassia. There is another Seeking Alpha report by Roger Conrad saying that Keystone XL will not make or break TRP. An article in the G&M by Barrie McKenna says that Obama now has enough cover because of international events to push through Keystone XL.

I am pleased with my investment in this stock. I will not be buying more because I have enough of this stock. I think that the stock is getting rather pricey, but I do not sell good stock just because it happens to be a bit pricey at the moment. To me this is a core stock and I will continue to hold it. See my spreadsheet at trp.htm.

This is the second of two parts. The first part was posted on Monday, March 31, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

TransCanada is a leader in energy infrastructure. Their network of pipeline taps into virtually all major gas supply basins in North America. TransCanada is one of the continent's largest providers of gas storage and related services. It is a growing independent power producer. Its web site is here TransCanada.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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