CA - TC Energy tumbles on pipeline spinoff plan; BMO TD analysts downgrade

2023-07-28 11:23:25 ET

TC Energy ( NYSE: TRP ) -4.2% in Friday's trading as investors apparently were blindsided by plans to spin off the liquids pipeline business into a separately traded company, and at least two analysts issued downgrades.

BMO Capital downgraded TC Energy ( TRP ) to Market Perform from Outperform with a C$55 price target, trimmed from C$60, saying it is "not yet convinced the separation will add value. Instead... it will detract for now."

"Previously, we believed valuation would rise on asset sales/ debt reduction and as [Coastal GasLink] concerns ease," BMO's Ben Pham wrote. "Now we believe share performance will be driven by perceived value of the two separate entities, and while Nat Gas/Power could trade at a healthy valuation, we are doubtful Liquids will."

TD Securities analyst Linda Ezergailis downgraded the stock to Hold from Buy, also on skepticism that the spinoff would create value and seeing "execution risk introducing uncertainty and potentially distracting from its existing strategic priorities."

But National Bank's Patrick Kenny upgraded TC Energy ( TRP ) to Outperform from Sector Perform with a C$54 PT, saying the business separation plan is "just what the spin doctor ordered."

Scotiabank said the spinout does not alter its leverage and funding outlook for TC Energy ( TRP ), and it does not expect the split to affect the growth rates of the two newly formed companies.

The tax-free spinoff separates high-growth areas of gas and power assets - which are expected to grow at a 7% compound annual growth rate through 2026 - from liquids assets, which are expected to grow 2%-3% through 2026 - according to Morningstar.

More on TC Energy:

• Financial and valuation comparison to sector peers
• Analysis: TC Energy Shares Have Fallen Too Far
• Stock price return: Down 13.5% YTD, down 35% in the past 12 months

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