TransCanada (TRP) Stock Lower on Keystone XL Pipeline Rejection

TransCanada (TRP) stock is diving in afternoon trading on Friday, after President Obama rejected its application to build the Keystone XL Pipeline.
By Rachel Graf ,

NEW YORK (TheStreet) -- TransCanada (TRP) - Get Report stock is tumbling by 6.14% to $32.26 in afternoon trading on Friday, after President Obama rejected the Canadian company's request to build the Keystone XL Pipeline.

Earlier this week, the energy infrastructure company asked the U.S. government to suspend its request to build the pipeline. Many viewed the request as a tactic to delay the pipeline's approval beyond the 2016 elections. 

The White House denied the application suspension on Wednesday, and President Obama ultimately rejected the company's application to build the pipeline today. The pipeline was not "in the interests of the United States," Obama said at a press conference. 

Democrats and Republicans have disagreed about the merits of the pipeline since the project began seven years ago. Democrats have opposed the project for its potentially harmful environmental impact and unproven economic benefits, whereas Republicans have supported it for jobs creation and energy independence.

"Today, misplaced symbolism was chosen over merit and science - rhetoric won out over reason," TransCanada said in a statement. "Today's decision deals a damaging blow to jobs, the economy and the environment on both sides of the border."

Separately, TheStreet Ratings team rates TRANSCANADA CORP as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate TRANSCANADA CORP (TRP) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins and increase in net income. However, as a counter to these strengths, we also find weaknesses including generally higher debt management risk, disappointing return on equity and weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 33.1%. Since the same quarter one year prior, revenues rose by 17.8%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • 49.98% is the gross profit margin for TRANSCANADA CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 17.25% significantly outperformed against the industry average.
  • TRANSCANADA CORP's earnings per share improvement from the most recent quarter was slightly positive. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, TRANSCANADA CORP increased its bottom line by earning $2.46 versus $2.42 in the prior year.
  • Currently the debt-to-equity ratio of 1.61 is quite high overall and when compared to the industry average, suggesting that the current management of debt levels should be re-evaluated. Along with this, the company manages to maintain a quick ratio of 0.28, which clearly demonstrates the inability to cover short-term cash needs.
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. When compared to other companies in the Oil, Gas & Consumable Fuels industry and the overall market, TRANSCANADA CORP's return on equity is below that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: TRP

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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