TC Energy’s SWOT analysis: natural gas giant faces growth and debt challenges

TC Energy (NYSE:TRP) Corporation, a major player in North America’s energy infrastructure sector with a market capitalization of $49.82 billion, stands at a critical juncture as it navigates a complex landscape of growth opportunities and financial challenges. The company, which operates an extensive network of natural gas pipelines across Canada, the United States, and Mexico, has recently reported financial results that have drawn mixed reactions from market analysts. According to InvestingPro data, TC Energy has demonstrated resilience with relatively low price volatility, making it an interesting prospect for stability-focused investors. This comprehensive analysis delves into TC Energy’s current position, future prospects, and the factors that could shape its trajectory in the coming years.

Company Overview and Recent Performance

TC Energy, trading under the ticker TRP on both the Toronto Stock Exchange (TSX) and New York Stock Exchange (NYSE), has built its business model around a portfolio of highly regulated and contracted assets. The company’s focus on premium pipes and power assets has provided a stable foundation, with 97% of its business being regulated or under long-term contracts.

In the first quarter of 2025, TC Energy reported adjusted EBITDA of CAD 2,709 million, which was in line with consensus estimates and slightly above some analysts’ projections. Trading at a P/E ratio of 16.3x and currently appearing undervalued according to InvestingPro’s Fair Value analysis, this performance underscores the resilience of TC Energy’s business model, particularly in the face of challenging market conditions. The company’s strong fundamentals are reflected in its impressive track record of maintaining dividend payments for 53 consecutive years, with a current dividend yield of 5.14%. The company’s natural gas pipeline assets demonstrated strong utilization rates across its North American operations, reflecting the robust demand for natural gas transportation services.

Despite the solid EBITDA performance, TC Energy’s adjusted earnings per share for Q1 2025 fell slightly below consensus expectations. This minor shortfall has not significantly altered the overall positive outlook for the company, as management has reaffirmed its guidance for the full year 2025. The company expects adjusted EBITDA to range between CAD 10.7 billion and CAD 10.9 billion, with earnings per share projected to exceed CAD 4.27 in 2025.

Strategic Projects and Growth Initiatives

TC Energy’s growth strategy revolves around a substantial project pipeline and strategic initiatives aimed at capitalizing on the evolving energy landscape. The company’s secured project backlog has expanded to CAD 28 billion, featuring key projects such as the Northwoods initiative and the Bruce Unit 5 Major Component Replacement (MCR).

A significant milestone for TC Energy is the imminent commencement of toll collections on the Strategic Gas Pipeline (SGP), expected to begin later in July 2025. This development is anticipated to contribute meaningfully to the company’s financial results in the coming quarters. Additionally, TC Energy has recently sanctioned a new data center-linked project, signaling its intent to diversify and tap into emerging energy-intensive sectors.

The company’s management has expressed confidence in maintaining a net annual capital expenditure target of CAD 6-7 billion. This investment strategy is expected to support consistent long-term share price appreciation, underpinned by a multi-year backlog of projects extending through the end of the decade.

Market Position and Industry Outlook

TC Energy’s market position is bolstered by its significant exposure to natural gas pipeline assets, which analysts view favorably given current market trends. With revenue growth of 8.07% in the last twelve months and a beta of 0.95, the company has demonstrated both growth potential and stability. The increasing demand for natural gas as a cleaner alternative to coal and as a complement to renewable energy sources positions TC Energy well for future growth. For deeper insights into TC Energy’s growth prospects and comprehensive financial analysis, investors can access detailed research reports through InvestingPro, which offers exclusive metrics and expert analysis for over 1,400 US-listed companies.

The company is also exploring opportunities in the gas-to-power sector, with analysts anticipating updates on commercialization efforts for potential projects in both the United States and Canada. This strategic direction aligns with the broader trend of electrification and the growing need for reliable power generation to support data centers and other energy-intensive industries.

TC Energy’s recent completion of the Southeast Gateway Pipeline is expected to contribute positively to the company’s performance starting in 2025. This project, along with others in the pipeline, supports the company’s growth expectations and reinforces its strategic positioning in key markets.

Regulatory Environment and Financial Strategy

TC Energy operates in a highly regulated environment, which provides both stability and challenges. The company is currently advancing rate cases, with new rates expected to take effect on November 1, 2025. These regulatory proceedings are crucial for ensuring that TC Energy can recover its costs and earn a fair return on its investments.

In response to potential earnings disruptions, such as the delayed In-Service Date (ISD) of the SGP project, TC Energy has implemented a toll adjustment mechanism. This proactive approach demonstrates the company’s ability to mitigate financial risks associated with project delays and regulatory changes.

From a financial perspective, TC Energy is committed to achieving a debt-to-EBITDA ratio target of 4.75x. This deleveraging initiative is viewed positively by analysts, as it aims to strengthen the company’s balance sheet and maintain financial flexibility for future growth opportunities. InvestingPro analysis reveals several additional factors supporting the company’s financial outlook, including its low P/E ratio relative to near-term earnings growth and consistent profitability over the last twelve months. Subscribers can access over 30 additional exclusive insights and metrics to make more informed investment decisions.

Bear Case

How might project delays impact TC Energy’s financial performance?

Project delays, such as those experienced with the Strategic Gas Pipeline, pose a significant risk to TC Energy’s financial performance. While the company has implemented mitigation strategies like toll adjustment mechanisms, prolonged delays could still result in earnings shortfalls and increased costs. The complex nature of large-scale infrastructure projects makes them susceptible to various risks, including regulatory hurdles, environmental challenges, and construction complications. If multiple projects in TC Energy’s extensive backlog were to face delays, it could lead to a cumulative negative impact on the company’s growth trajectory and its ability to meet financial targets.

What risks does TC Energy face in achieving its debt reduction targets?

TC Energy’s commitment to reducing its debt-to-EBITDA ratio to 4.75x is crucial for maintaining financial stability and investor confidence. However, achieving this target may prove challenging in the face of ongoing capital expenditures and potential project overruns. The company’s substantial project backlog, while promising for future growth, requires significant upfront investment. If cash flows from existing assets or newly completed projects underperform expectations, TC Energy may struggle to generate sufficient funds for both debt reduction and capital investment. Additionally, unforeseen market disruptions or economic downturns could impact the company’s ability to execute its deleveraging strategy, potentially leading to higher financing costs and reduced financial flexibility.

Bull Case

How could TC Energy’s expansion into gas-to-power projects drive growth?

TC Energy’s strategic focus on gas-to-power projects presents a significant opportunity for growth in the evolving energy landscape. As economies transition towards cleaner energy sources, natural gas is increasingly viewed as a crucial bridge fuel, providing reliable power generation to complement intermittent renewable sources. TC Energy’s extensive natural gas pipeline network positions it favorably to capitalize on this trend. By developing gas-to-power projects, the company can vertically integrate its operations, potentially capturing additional value along the energy supply chain. These projects could lead to long-term, stable cash flows through power purchase agreements with utilities and large industrial consumers, including the rapidly growing data center sector. Success in this area could diversify TC Energy’s revenue streams and enhance its competitive position in the energy infrastructure market.

What impact will the Strategic Gas Pipeline have on TC Energy’s earnings?

The Strategic Gas Pipeline (SGP) represents a major catalyst for TC Energy’s near-term earnings growth. With toll collections set to begin in July 2025, the SGP is expected to contribute significantly to the company’s financial results in the coming quarters. This project enhances TC Energy’s ability to transport natural gas to key markets, potentially increasing both volume and pricing power. The strategic importance of the SGP lies not only in its immediate revenue generation but also in its role in strengthening TC Energy’s overall network capabilities. By improving connectivity and capacity, the SGP could open up opportunities for additional projects and expansions, further driving long-term growth. The successful completion and operation of the SGP also demonstrate TC Energy’s project execution capabilities, which could bolster investor confidence and support future capital raising efforts for new initiatives.

SWOT Analysis

Strengths:

• Extensive network of regulated and contracted assets
• Strong market position in natural gas transportation
• Diversified portfolio across Canada, US, and Mexico
• Proven ability to execute large-scale projects

Weaknesses:

• High debt levels requiring ongoing deleveraging efforts
• Exposure to project execution risks and potential delays
• Recent earnings performance slightly below expectations

Opportunities:

• Growing demand for natural gas as a transition fuel
• Expansion into gas-to-power and data center-linked projects
• Potential for additional project approvals in the US power sector
• Increasing need for energy infrastructure to support renewable integration

Threats:

• Regulatory changes affecting rate structures or project approvals
• Increasing competition in the energy infrastructure sector
• Environmental opposition to fossil fuel-related projects
• Potential for economic downturns impacting energy demand

Analysts Targets

• Barclays (LON:BARC) Capital Inc.: CAD 74.00 (July 14th, 2025)
• BMO Nesbitt Burns Inc.: CAD 71.00 (May 2nd, 2025)
• RBC Capital Markets: CAD 74.00 (May 2nd, 2025)

This analysis is based on information available up to July 17, 2025, and reflects the current market sentiment and analyst perspectives on TC Energy Corporation.

InvestingPro: Smarter Decisions, Better Returns

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