The stock of TC Energy (NYSE:TRP, 30-year Financials) appears to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $46.23 per share and the market cap of $45.2 billion, TC Energy stock is estimated to be fairly valued. GF Value for TC Energy is shown in the chart below.
Because TC Energy is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which is estimated to grow 2.10% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. TC Energy has a cash-to-debt ratio of 0.03, which is worse than 88% of the companies in Oil & Gas industry. The overall financial strength of TC Energy is 3 out of 10, which indicates that the financial strength of TC Energy is poor. This is the debt and cash of TC Energy over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. TC Energy has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $8.7 billion and earnings of $3.54 a share. Its operating margin is 53.30%, which ranks better than 96% of the companies in Oil & Gas industry. Overall, the profitability of TC Energy is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of TC Energy over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. TC Energy's 3-year average revenue growth rate is in the middle range of the companies in Oil & Gas industry. TC Energy's 3-year average EBITDA growth rate is 7.3%, which ranks in the middle range of the companies in Oil & Gas industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, TC Energy's return on invested capital is 5.76, and its cost of capital is 4.68. The historical ROIC vs WACC comparison of TC Energy is shown below:
In conclusion, the stock of TC Energy (NYSE:TRP, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about TC Energy stock, you can check out its 30-year Financials here.
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