TransCanada (TRP) vs. Shell Midstream Partners (SHLX) Critical Review

Shell Midstream Partners (NYSE: SHLX) and TransCanada (NYSE:TRP) are both energy companies, but which is the better business? We will compare the two companies based on the strength of their dividends, profitability, valuation, institutional ownership, risk, earnings and analyst recommendations.

Analyst Recommendations

This is a summary of recent ratings and recommmendations for Shell Midstream Partners and TransCanada, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Shell Midstream Partners 0 3 3 0 2.50
TransCanada 0 0 7 0 3.00

Shell Midstream Partners currently has a consensus target price of $32.33, suggesting a potential upside of 24.31%. TransCanada has a consensus target price of $59.00, suggesting a potential upside of 38.01%. Given TransCanada’s stronger consensus rating and higher probable upside, analysts plainly believe TransCanada is more favorable than Shell Midstream Partners.

Dividends

Shell Midstream Partners pays an annual dividend of $1.33 per share and has a dividend yield of 5.1%. TransCanada pays an annual dividend of $2.03 per share and has a dividend yield of 4.7%. Shell Midstream Partners pays out 105.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. TransCanada pays out 126.1% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. Shell Midstream Partners has raised its dividend for 2 consecutive years and TransCanada has raised its dividend for 2 consecutive years. Shell Midstream Partners is clearly the better dividend stock, given its higher yield and lower payout ratio.

Insider & Institutional Ownership

44.7% of Shell Midstream Partners shares are held by institutional investors. Comparatively, 57.2% of TransCanada shares are held by institutional investors. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a company will outperform the market over the long term.

Profitability

This table compares Shell Midstream Partners and TransCanada’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Shell Midstream Partners 85.14% 3,826.80% 27.98%
TransCanada 14.40% 11.99% 3.09%

Valuation & Earnings

This table compares Shell Midstream Partners and TransCanada’s gross revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Shell Midstream Partners $291.30 million 19.98 $244.90 million $1.26 20.64
TransCanada $9.44 billion 3.97 $175.96 million $1.61 26.55

Shell Midstream Partners has higher earnings, but lower revenue than TransCanada. Shell Midstream Partners is trading at a lower price-to-earnings ratio than TransCanada, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Shell Midstream Partners has a beta of 1.02, indicating that its stock price is 2% more volatile than the S&P 500. Comparatively, TransCanada has a beta of 0.6, indicating that its stock price is 40% less volatile than the S&P 500.

Summary

Shell Midstream Partners beats TransCanada on 8 of the 15 factors compared between the two stocks.

Shell Midstream Partners Company Profile

Shell Midstream Partners, L.P. is a master limited partnership company, which owns, operates, develops and acquires pipelines and other midstream assets. The Company conducts its operations through its subsidiary, Shell Midstream Operating, LLC. Its assets consist of interests in entities that own crude oil and refined products pipelines serving as key infrastructure to transport onshore and offshore crude oil production to Gulf Coast and Midwest refining markets and to deliver refined products from those markets to demand centers. As of December 31, 2016, it owned interests in seven crude oil pipeline systems, three refined products systems, one natural gas gathering pipeline system and a crude tank storage and terminal system. Its pipeline and terminal systems include Zydeco crude oil system, Auger crude oil system, Mars crude oil system, Bengal product system, Poseidon crude oil system, Odyssey crude oil system, Proteus crude oil system and Endymion crude oil system.

TransCanada Company Profile

TransCanada Corporation is an energy infrastructure company. The Company is engaged in the development and operation of North American energy infrastructure, including natural gas and liquids pipelines, power generation and natural gas storage facilities. Its segments include Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Mexico Natural Gas Pipelines, Liquids Pipelines and Energy. The Company operates in three businesses: Natural Gas Pipelines, Liquids Pipelines and Energy. The Natural Gas Pipelines and Liquids Pipelines segments principally consist of its respective natural gas and liquids pipelines in Canada, the United States and Mexico, as well as its regulated natural gas storage operations in the United States. The Energy segment includes its power operations and the non-regulated natural gas storage business in Canada. TransCanada PipeLines Limited (TCPL) is its principal operating subsidiary.

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