We've been asking ourselves recently if the market has placed a fair valuation on TC Energy. Let's dive into some of the fundamental values of this large-cap Utilities company to determine if there might be an opportunity here for value-minded investors.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
TC Energy Corporation operates as an energy infrastructure company in North America. The company belongs to the Utilities sector, which has an average price to earnings (P/E) ratio of 17.53 and an average price to book (P/B) ratio of 1.71. In contrast, TC Energy has a trailing 12 month P/E ratio of -379.8 and a P/B ratio of 1.26.
When we divide TC Energy's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -8.16. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
The Company's Revenues Are Declining:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $13,679 | $13,255 | $12,999 | $13,387 | $14,977 | $14,977 |
| Revenue Growth | n/a | -3.1% | -1.93% | 2.98% | 11.88% | 0.0% |
| Gross Margins | 36% | 44% | 45% | 23% | 38% | 38% |
| Operating Margins | 42% | 50% | 52% | 30% | 24% | 24% |
| Net Margins | 27% | 33% | 38% | 15% | 5% | 5% |
| Net Income (MM) | $3,702 | $4,433 | $4,913 | $2,046 | $785 | $785 |
| Net Interest Expense (MM) | $2,265 | $2,333 | $2,228 | $2,360 | $2,588 | $2,588 |
| Depreciation & Amort. (MM) | $2,350 | $2,464 | $2,590 | $2,522 | $2,584 | $2,584 |
| Earnings Per Share | $3.92 | $4.27 | $4.74 | $1.86 | $0.64 | $0.64 |
| Diluted Shares (MM) | 903 | 931 | 940 | 974 | 996 | 996 |
| Free Cash Flow (MM) | -$4,374 | -$1,702 | -$1,842 | -$244 | -$2,586 | -$2,586 |
| Capital Expenditures (MM) | $10,929 | $8,784 | $8,900 | $7,134 | $8,961 | $8,961 |
| Current Ratio | 0.4 | 0.59 | 0.43 | 0.57 | 0.43 | 0.43 |
| Long Term Debt (MM) | $36,509 | $36,509 | $51,652 | $55,105 | $60,020 | $60,020 |
| Net Debt / EBITDA | 4.78 | 4.35 | 6.46 | 9.89 | 9.62 | 9.62 |
TC Energy's financial statements include several red flags such as weak revenue growth and decreasing reinvestment in the business, declining EPS growth, and an unconvincing cash flow history. Additionally, the firm has a highly leveraged balance sheet. On the other hand, the company benefits from wider gross margins than its peer group and decent operating margins with a negative growth trend.
