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On Monday, JPMorgan made a bullish move on TC Energy (NYSE:TRP), upgrading the stock from Neutral to Overweight. The firm's analysis pointed to a brighter outlook for natural gas midstream companies, driven by the increasing demand for natural gas to power data centers. This sector has seen notable performance this year, with the Alerian Midstream Energy Index (AMNA) rising by 11% compared to the S&P 500.
The enthusiasm for data centers is seen as a boon for natural gas midstreamers, as they are expected to benefit from additional natural gas generation, which in turn will require more pipeline infrastructure. Companies with leverage to U.S. gas, such as Williams Companies Inc. (NYSE:WMB), Kinder Morgan Inc. (NYSE:KMI), and DTE Midstream (DTM), have significantly outperformed the AMNA, with stock increases of 50%, 46%, and 62% respectively, due to new projects servicing natural gas generation customers.
TC Energy has also seen a strong performance, with its stock price increasing by 40%. However, JPMorgan sees potential for the company to align with its U.S. peers, especially as it begins to further define its natural gas pipeline expansion plans. These expansions are anticipated to cater to the growing demand for power and LNG exports, with expectations of EBITDA growth of over 7% per year through 2026.
The analyst highlighted TC Energy's attractive 5.4% yield, which is more generous than that of its natural gas peers. In an environment indirectly impacted by oil market volatility, TC Energy is perceived as offering both offensive and defensive investment opportunities. The firm's positive outlook on the company's expansion opportunities and yield has led to the decision to upgrade the stock rating.
In other recent news, TC Energy has experienced a series of notable developments. The company reported a 9% year-over-year increase in comparable EBITDA for the second quarter of 2024. TC Energy's strategic move to spin off its Liquids Pipelines business into a new entity, South Bow Corporation, has led to a series of reactions from analysts. While BMO Capital Markets revised its price target for TC Energy downwards, UBS upgraded the company's stock to Buy, anticipating a more favorable valuation following the spin-off.
Wolfe Research maintained a Peer Perform rating on TC Energy, citing strong fundamentals but expressing concerns about the current valuation. The firm also highlighted TC Energy's successful South Bow spinoff, which led to a quick revaluation of the stock. TC Energy's exposure to Mexico, which accounts for 15% of its business, was noted as a potential risk factor.
Furthermore, TC Energy and its partner, Northern New England Investment Company, successfully completed the sale of the Portland Natural Gas Transmission System for a gross purchase price of $1.14 billion. This aligns with the company's strategic plan to reach a $3 billion asset divestiture target by 2024.
Other recent developments include the shareholder approval of the South Bow spinoff, a landmark Indigenous Equity Ownership agreement in Canada, and exploration of opportunities in the data center industry.
InvestingPro Insights
TC Energy's recent upgrade by JPMorgan aligns well with several key metrics and insights from InvestingPro. The company's dividend yield of 6.24% surpasses the 5.4% mentioned in the article, making it even more attractive to income-seeking investors. This is further supported by an InvestingPro Tip highlighting that TC Energy has maintained dividend payments for 52 consecutive years, demonstrating a strong commitment to shareholder returns.
The article's mention of TC Energy's 40% stock price increase is reinforced by InvestingPro data showing a 53.15% total return over the past year and a 43.54% return over the last six months. This performance is in line with the strong returns of its U.S. peers mentioned in the article.
Additionally, an InvestingPro Tip notes that TC Energy is trading near its 52-week high, which corroborates the positive momentum discussed in the JPMorgan analysis. The company's revenue growth of 8.89% over the last twelve months also supports the expectation of continued EBITDA growth mentioned in the article.
For investors seeking more comprehensive analysis, InvestingPro offers 11 additional tips for TC Energy, providing a deeper understanding of the company's financial health and market position.
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