Intrinsic value of TransCanada - TRP

Previous Close

$49.51

  Intrinsic Value

$2.22

stock screener

  Rating & Target

str. sell

-96%

  Value-price divergence*

+55%

Previous close

$49.51

 
Intrinsic value

$2.22

 
Up/down potential

-96%

 
Rating

str. sell

 
Value-price divergence*

+55%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of TRP stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 42.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.66
  35.50
  32.45
  29.71
  27.23
  25.01
  23.01
  21.21
  19.59
  18.13
  16.82
  15.63
  14.57
  13.61
  12.75
  11.98
  11.28
  10.65
  10.09
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
Revenue, $m
  9,256
  12,542
  16,612
  21,546
  27,414
  34,271
  42,157
  51,097
  61,106
  72,185
  84,323
  97,507
  111,715
  126,924
  143,110
  160,251
  178,327
  197,322
  217,225
  238,031
  259,739
  282,358
  305,898
  330,381
  355,831
  382,280
  409,764
  438,327
  468,017
  498,889
  531,000
Variable operating expenses, $m
 
  12,413
  16,106
  20,584
  25,908
  32,130
  39,285
  47,398
  56,480
  66,532
  77,547
  88,477
  101,369
  115,169
  129,856
  145,410
  161,812
  179,047
  197,107
  215,986
  235,684
  256,207
  277,568
  299,783
  322,876
  346,875
  371,814
  397,732
  424,672
  452,685
  481,822
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  7,393
  12,413
  16,106
  20,584
  25,908
  32,130
  39,285
  47,398
  56,480
  66,532
  77,547
  88,477
  101,369
  115,169
  129,856
  145,410
  161,812
  179,047
  197,107
  215,986
  235,684
  256,207
  277,568
  299,783
  322,876
  346,875
  371,814
  397,732
  424,672
  452,685
  481,822
Operating income, $m
  1,863
  128
  505
  962
  1,506
  2,141
  2,871
  3,699
  4,626
  5,652
  6,776
  9,031
  10,346
  11,755
  13,254
  14,842
  16,516
  18,275
  20,118
  22,045
  24,056
  26,150
  28,331
  30,598
  32,955
  35,404
  37,950
  40,595
  43,345
  46,204
  49,178
EBITDA, $m
  3,298
  3,218
  4,262
  5,528
  7,033
  8,792
  10,815
  13,109
  15,677
  18,519
  21,633
  25,015
  28,660
  32,562
  36,715
  41,112
  45,749
  50,622
  55,729
  61,066
  66,635
  72,438
  78,477
  84,758
  91,288
  98,073
  105,124
  112,452
  120,069
  127,989
  136,227
Interest expense (income), $m
  1,274
  1,395
  2,097
  2,974
  4,036
  5,299
  6,776
  8,473
  10,398
  12,553
  14,938
  17,552
  20,390
  23,449
  26,724
  30,209
  33,899
  37,791
  41,880
  46,165
  50,645
  55,319
  60,188
  65,257
  70,528
  76,007
  81,701
  87,619
  93,768
  100,161
  106,807
Earnings before tax, $m
  620
  -1,267
  -1,592
  -2,011
  -2,530
  -3,159
  -3,904
  -4,774
  -5,772
  -6,901
  -8,162
  -8,521
  -10,044
  -11,694
  -13,470
  -15,367
  -17,384
  -19,516
  -21,762
  -24,120
  -26,589
  -29,168
  -31,858
  -34,659
  -37,573
  -40,603
  -43,752
  -47,024
  -50,423
  -53,957
  -57,629
Tax expense, $m
  261
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  172
  -1,267
  -1,592
  -2,011
  -2,530
  -3,159
  -3,904
  -4,774
  -5,772
  -6,901
  -8,162
  -8,521
  -10,044
  -11,694
  -13,470
  -15,367
  -17,384
  -19,516
  -21,762
  -24,120
  -26,589
  -29,168
  -31,858
  -34,659
  -37,573
  -40,603
  -43,752
  -47,024
  -50,423
  -53,957
  -57,629

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  752
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  65,171
  87,096
  115,359
  149,627
  190,377
  237,992
  292,754
  354,844
  424,351
  501,282
  585,579
  677,133
  775,800
  881,418
  993,822
  1,112,856
  1,238,383
  1,370,292
  1,508,507
  1,652,990
  1,803,745
  1,960,816
  2,124,295
  2,294,314
  2,471,049
  2,654,720
  2,845,583
  3,043,938
  3,250,121
  3,464,506
  3,687,502
Adjusted assets (=assets-cash), $m
  64,419
  87,096
  115,359
  149,627
  190,377
  237,992
  292,754
  354,844
  424,351
  501,282
  585,579
  677,133
  775,800
  881,418
  993,822
  1,112,856
  1,238,383
  1,370,292
  1,508,507
  1,652,990
  1,803,745
  1,960,816
  2,124,295
  2,294,314
  2,471,049
  2,654,720
  2,845,583
  3,043,938
  3,250,121
  3,464,506
  3,687,502
Revenue / Adjusted assets
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
  0.144
Average production assets, $m
  45,518
  61,681
  81,696
  105,964
  134,823
  168,544
  207,326
  251,297
  300,522
  355,004
  414,703
  479,540
  549,415
  624,213
  703,817
  788,116
  877,013
  970,430
  1,068,313
  1,170,634
  1,277,397
  1,388,634
  1,504,409
  1,624,815
  1,749,977
  1,880,051
  2,015,219
  2,155,693
  2,301,710
  2,453,535
  2,611,459
Working capital, $m
  299
  2,007
  2,658
  3,447
  4,386
  5,483
  6,745
  8,176
  9,777
  11,550
  13,492
  15,601
  17,874
  20,308
  22,898
  25,640
  28,532
  31,572
  34,756
  38,085
  41,558
  45,177
  48,944
  52,861
  56,933
  61,165
  65,562
  70,132
  74,883
  79,822
  84,960
Total debt, $m
  33,199
  48,778
  69,156
  93,863
  123,244
  157,574
  197,057
  241,824
  291,939
  347,406
  408,185
  474,195
  545,333
  621,484
  702,528
  788,351
  878,856
  973,963
  1,073,616
  1,177,788
  1,286,482
  1,399,730
  1,517,599
  1,640,182
  1,767,609
  1,900,035
  2,037,647
  2,180,661
  2,329,319
  2,483,891
  2,644,671
Total liabilities, $m
  47,217
  62,796
  83,174
  107,881
  137,262
  171,592
  211,075
  255,842
  305,957
  361,424
  422,203
  488,213
  559,351
  635,502
  716,546
  802,369
  892,874
  987,981
  1,087,634
  1,191,806
  1,300,500
  1,413,748
  1,531,617
  1,654,200
  1,781,627
  1,914,053
  2,051,665
  2,194,679
  2,343,337
  2,497,909
  2,658,689
Total equity, $m
  17,954
  24,300
  32,185
  41,746
  53,115
  66,400
  81,678
  99,001
  118,394
  139,858
  163,377
  188,920
  216,448
  245,916
  277,276
  310,487
  345,509
  382,311
  420,873
  461,184
  503,245
  547,068
  592,678
  640,114
  689,423
  740,667
  793,918
  849,259
  906,784
  966,597
  1,028,813
Total liabilities and equity, $m
  65,171
  87,096
  115,359
  149,627
  190,377
  237,992
  292,753
  354,843
  424,351
  501,282
  585,580
  677,133
  775,799
  881,418
  993,822
  1,112,856
  1,238,383
  1,370,292
  1,508,507
  1,652,990
  1,803,745
  1,960,816
  2,124,295
  2,294,314
  2,471,050
  2,654,720
  2,845,583
  3,043,938
  3,250,121
  3,464,506
  3,687,502
Debt-to-equity ratio
  1.849
  2.010
  2.150
  2.250
  2.320
  2.370
  2.410
  2.440
  2.470
  2.480
  2.500
  2.510
  2.520
  2.530
  2.530
  2.540
  2.540
  2.550
  2.550
  2.550
  2.560
  2.560
  2.560
  2.560
  2.560
  2.570
  2.570
  2.570
  2.570
  2.570
  2.570
Adjusted equity ratio
  0.276
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279
  0.279

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  172
  -1,267
  -1,592
  -2,011
  -2,530
  -3,159
  -3,904
  -4,774
  -5,772
  -6,901
  -8,162
  -8,521
  -10,044
  -11,694
  -13,470
  -15,367
  -17,384
  -19,516
  -21,762
  -24,120
  -26,589
  -29,168
  -31,858
  -34,659
  -37,573
  -40,603
  -43,752
  -47,024
  -50,423
  -53,957
  -57,629
Depreciation, amort., depletion, $m
  1,435
  3,089
  3,756
  4,565
  5,527
  6,651
  7,944
  9,410
  11,050
  12,867
  14,857
  15,985
  18,314
  20,807
  23,461
  26,271
  29,234
  32,348
  35,610
  39,021
  42,580
  46,288
  50,147
  54,160
  58,333
  62,668
  67,174
  71,856
  76,724
  81,785
  87,049
Funds from operations, $m
  3,936
  1,822
  2,164
  2,554
  2,997
  3,493
  4,039
  4,635
  5,278
  5,965
  6,694
  7,463
  8,270
  9,113
  9,991
  10,903
  11,850
  12,832
  13,848
  14,901
  15,991
  17,119
  18,289
  19,502
  20,760
  22,066
  23,422
  24,833
  26,300
  27,828
  29,419
Change in working capital, $m
  184
  526
  651
  790
  939
  1,097
  1,262
  1,431
  1,601
  1,773
  1,942
  2,109
  2,273
  2,433
  2,590
  2,743
  2,892
  3,039
  3,184
  3,329
  3,473
  3,619
  3,767
  3,917
  4,072
  4,232
  4,397
  4,570
  4,750
  4,939
  5,138
Cash from operations, $m
  3,752
  1,297
  1,513
  1,764
  2,058
  2,396
  2,778
  3,205
  3,677
  4,193
  4,752
  5,354
  5,997
  6,679
  7,401
  8,161
  8,958
  9,792
  10,664
  11,572
  12,517
  13,500
  14,523
  15,584
  16,688
  17,834
  19,025
  20,263
  21,550
  22,888
  24,282
Maintenance CAPEX, $m
  0
  -1,517
  -2,056
  -2,723
  -3,532
  -4,494
  -5,618
  -6,911
  -8,377
  -10,017
  -11,833
  -13,823
  -15,985
  -18,314
  -20,807
  -23,461
  -26,271
  -29,234
  -32,348
  -35,610
  -39,021
  -42,580
  -46,288
  -50,147
  -54,160
  -58,333
  -62,668
  -67,174
  -71,856
  -76,724
  -81,785
New CAPEX, $m
  -3,924
  -16,163
  -20,015
  -24,268
  -28,859
  -33,721
  -38,782
  -43,972
  -49,224
  -54,482
  -59,699
  -64,837
  -69,875
  -74,798
  -79,604
  -84,299
  -88,897
  -93,417
  -97,883
  -102,322
  -106,763
  -111,237
  -115,774
  -120,406
  -125,163
  -130,074
  -135,168
  -140,473
  -146,017
  -151,826
  -157,924
Cash from investing activities, $m
  -13,902
  -17,680
  -22,071
  -26,991
  -32,391
  -38,215
  -44,400
  -50,883
  -57,601
  -64,499
  -71,532
  -78,660
  -85,860
  -93,112
  -100,411
  -107,760
  -115,168
  -122,651
  -130,231
  -137,932
  -145,784
  -153,817
  -162,062
  -170,553
  -179,323
  -188,407
  -197,836
  -207,647
  -217,873
  -228,550
  -239,709
Free cash flow, $m
  -10,150
  -16,384
  -20,558
  -25,227
  -30,333
  -35,819
  -41,622
  -47,678
  -53,924
  -60,307
  -66,780
  -73,307
  -79,863
  -86,432
  -93,010
  -99,599
  -106,209
  -112,858
  -119,567
  -126,360
  -133,267
  -140,316
  -147,540
  -154,969
  -162,635
  -170,572
  -178,811
  -187,385
  -196,324
  -205,661
  -215,427
Issuance/(repayment) of debt, $m
  4,737
  16,331
  20,377
  24,707
  29,381
  34,331
  39,483
  44,767
  50,115
  55,468
  60,778
  66,010
  71,139
  76,151
  81,044
  85,824
  90,505
  95,106
  99,653
  104,172
  108,694
  113,249
  117,868
  122,584
  127,426
  132,426
  137,613
  143,014
  148,658
  154,571
  160,780
Issuance/(repurchase) of shares, $m
  6,815
  7,613
  9,477
  11,572
  13,900
  16,443
  19,183
  22,097
  25,165
  28,365
  31,681
  34,065
  37,572
  41,162
  44,831
  48,578
  52,405
  56,319
  60,324
  64,431
  68,650
  72,991
  77,468
  82,094
  86,882
  91,847
  97,002
  102,365
  107,949
  113,770
  119,845
Cash from financing (excl. dividends), $m  
  11,504
  23,944
  29,854
  36,279
  43,281
  50,774
  58,666
  66,864
  75,280
  83,833
  92,459
  100,075
  108,711
  117,313
  125,875
  134,402
  142,910
  151,425
  159,977
  168,603
  177,344
  186,240
  195,336
  204,678
  214,308
  224,273
  234,615
  245,379
  256,607
  268,341
  280,625
Total cash flow (excl. dividends), $m
  1,260
  7,560
  9,296
  11,052
  12,947
  14,955
  17,044
  19,187
  21,355
  23,526
  25,679
  26,768
  28,848
  30,880
  32,864
  34,803
  36,701
  38,567
  40,411
  42,243
  44,077
  45,924
  47,797
  49,709
  51,673
  53,700
  55,804
  57,994
  60,283
  62,681
  65,198
Retained Cash Flow (-), $m
  -5,787
  -7,613
  -9,477
  -11,572
  -13,900
  -16,443
  -19,183
  -22,097
  -25,165
  -28,365
  -31,681
  -34,065
  -37,572
  -41,162
  -44,831
  -48,578
  -52,405
  -56,319
  -60,324
  -64,431
  -68,650
  -72,991
  -77,468
  -82,094
  -86,882
  -91,847
  -97,002
  -102,365
  -107,949
  -113,770
  -119,845
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -53
  -181
  -520
  -952
  -1,489
  -2,139
  -2,911
  -3,810
  -4,839
  -6,002
  -7,297
  -8,724
  -10,282
  -11,966
  -13,775
  -15,705
  -17,752
  -19,914
  -22,188
  -24,573
  -27,068
  -29,671
  -32,385
  -35,209
  -38,146
  -41,199
  -44,371
  -47,666
  -51,089
  -54,647
Discount rate, %
 
  10.10
  10.61
  11.14
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.05
  20.00
  21.00
  22.05
  23.15
  24.31
  25.52
  26.80
  28.14
  29.55
  31.02
  32.57
  34.20
  35.91
  37.71
  39.59
  41.57
PV of cash for distribution, $m
 
  -48
  -148
  -379
  -612
  -834
  -1,033
  -1,197
  -1,316
  -1,384
  -1,400
  -1,366
  -1,289
  -1,178
  -1,042
  -894
  -744
  -600
  -469
  -355
  -261
  -185
  -127
  -84
  -54
  -33
  -20
  -11
  -6
  -3
  -2
Current shareholders' claim on cash, %
  100
  84.8
  72.8
  63.2
  55.4
  49.0
  43.6
  39.2
  35.4
  32.1
  29.3
  26.9
  24.8
  23.0
  21.3
  19.9
  18.6
  17.4
  16.3
  15.3
  14.4
  13.5
  12.8
  12.1
  11.4
  10.8
  10.2
  9.7
  9.2
  8.8
  8.3

TransCanada Corporation operates as an energy infrastructure company in North America. It operates through Canadian Natural Gas Pipelines, U.S. Natural Gas Pipelines, Mexico Natural Gas Pipelines, Liquids Pipelines, and Energy segments. The company transports natural gas to local distribution companies, power generation facilities, and other businesses through a network of regulated natural gas pipelines and storage facilities. It owns and operates a network of 80,400 km of wholly-owned natural gas pipelines and 11,100 km of partially-owned natural gas pipelines; and regulated natural gas storage facilities with a total working gas capacity of 535 Bcf. The company also owns and operates Keystone pipeline system of 4,324 km for the transportation of crude oil from Hardisty, Alberta to Wood River and Patoka in Illinois; Cushing, Oklahoma; and Houston and Port Arthur, Texas. In addition, it operates terminal and pipeline facilities to transport crude oil from the market hub at Cushing, Oklahoma to the Houston and Port Arthur, Texas refining market. Further, the company owns, controls, and develops approximately 7,050 MW of generation capacity powered by natural gas, nuclear, wind, and solar assets; and owns and operates regulated and unregulated natural gas storage facilities. It also operates 18 electrical power generation plants and 118 Bcf of non-regulated natural gas storage facilities in Alberta, Ontario, Qu├ębec, and New Brunswick in Canada; and New York, New England, Pennsylvania, and Arizona in the United States. TransCanada Corporation was founded in 1951 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  TransCanada (TRP)

Valuation Ratios
P/E Ratio 248.7
Price to Sales 4.6
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 11.4
Price to Free Cash Flow -248.7
Growth Rates
Sales Growth Rate 10.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 19.7%
Cap. Spend. - 3 Yr. Gr. Rate 3.5%
Financial Strength
Quick Ratio 0
Current Ratio 0.6
LT Debt to Equity 174.1%
Total Debt to Equity 184.9%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.6%
Ret/ On Assets - 3 Yr. Avg. 2.2%
Return On Total Capital 0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 0.7%
Return On Equity 1.1%
Return On Equity - 3 Yr. Avg. 1.5%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 52.1%
Gross Margin - 3 Yr. Avg. 52.1%
EBITDA Margin 36%
EBITDA Margin - 3 Yr. Avg. 35.9%
Operating Margin 20.1%
Oper. Margin - 3 Yr. Avg. 16.9%
Pre-Tax Margin 6.7%
Pre-Tax Margin - 3 Yr. Avg. 8.2%
Net Profit Margin 1.9%
Net Profit Margin - 3 Yr. Avg. 3.3%
Effective Tax Rate 42.1%
Eff/ Tax Rate - 3 Yr. Avg. 22.8%
Payout Ratio 661%

TRP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TRP stock intrinsic value calculation we used $9256 million for the last fiscal year's total revenue generated by TransCanada. The default revenue input number comes from 2016 income statement of TransCanada. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our TRP stock valuation model: a) initial revenue growth rate of 35.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 10.1%, whose default value for TRP is calculated based on our internal credit rating of TransCanada, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of TransCanada.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of TRP stock the variable cost ratio is equal to 101.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for TRP stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.3% for TransCanada.

Corporate tax rate of 27% is the nominal tax rate for TransCanada. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the TRP stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for TRP are equal to 491.8%.

Life of production assets of 36.6 years is the average useful life of capital assets used in TransCanada operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for TRP is equal to 16%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $17954 million for TransCanada - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 857.705 million for TransCanada is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of TransCanada at the current share price and the inputted number of shares is $42.5 billion.

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COMPANY NEWS

▶ Controversy in the Pipelines of KMI, ETP, TRP, ENB   [Aug-18-17 03:25PM  Market Realist]
▶ Why I Love TransCanada Corporation   [Aug-16-17 04:42PM  Motley Fool]
▶ ETFs with exposure to TransCanada Corp. : August 15, 2017   [Aug-15-17 05:19PM  Capital Cube]
▶ 3 Stocks Retirees Should Buy on a Market Pullback   [Aug-11-17 09:21PM  Motley Fool]
▶ Keystone XL foes question proposed route through Nebraska   [Aug-08-17 09:12PM  Associated Press]
▶ 3 No-Brainer Stocks to Buy in the Energy Sector   [Jul-30-17 09:07AM  Motley Fool]
▶ TransCanada beats 2Q profit forecasts   [Jul-28-17 10:58PM  Associated Press]
▶ TransCanada Declares Quarterly Dividends   [07:35AM  Marketwired]
▶ 3 Top Stocks for Risk-Averse Investors   [Jul-18-17 01:30PM  Motley Fool]
▶ Why 87% of Wall Street Analysts Rate TransCanada a Buy   [Jul-14-17 05:35PM  Market Realist]
▶ New Strong Buy Stocks for July 10th   [Jul-10-17 09:07AM  Zacks]
▶ Has Keystone XL Become Obsolete?   [Jul-03-17 07:00PM  Oilprice.com]
Stock chart of TRP Financial statements of TRP
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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