Shares in TransCanada Corp. (NYSE:TRP) were on the rebound Wednesday, erasing the more than 2% loss suffered on Tuesday. The pipeline stock was tripped up yesterday when TransCanada announced that fourth quarter profits fell 25% from the year earlier. Seemingly discounted by investors was the fact that TransCanada raised its dividend for the ninth year in a row and will now pay out quarterly C$.38 per share, versus C$.36 paid in 2008.
Desjardins Securities analyst Pierre Lacroix maintained his "buy" rating and C$39 price target, noting to clients that TransCanada investors may have had unrealistically high expectations.
He wrote in a note to clients:
We believe that investors may have been overly focused on the high spot power prices exhibited in Alberta in 4Q (C$95/MWh on average) and the full year (C$90/MWh on average, with an expectation that TRP could get in on the action.
In fact, TransCanada had locked in much of its capacity ahead of time, realizing an average 4Q and full-year price of C$75/MWh in its Western Power segment. We emphasize that the result is in line with the company's strategy to sell the majority of its output on contract – we had largely expected this, even though the Street had not.
Mr. Lacroix added that TransCanada's Western Power operations should remain stable despite any potential power market weakness.