Conrad's Pipeline Takeover Targets

12/13/2002 12:00 am EST

Focus:

Roger Conrad

Founder and Chief Editor, Capitalist Times

"During the past century, America has become ever more dependent on oil and gas," notes Roger Conrad.  "But in recent years, construction of piplines needed to bring petroleum products to market has virtually ground to a halt. The good news is that the lack of new construction has made existing pipeline systems increasingly valuable." In the Total Return Advisory, Conrad highlights two potential takeover targets in the sector.

"Two pipeline firms at the top of the potential takeover list are Trans-Canada Pipelines (TRP NYSE) and NiSource (NI NYSE). Both are cheap, financially solid, high-yielding, on track for solid growth, and ripe for profitable takeovers. Trans-Canada is the sole remaining major independent pipeline company left in Canada. The company owns 38,000 kilometers of long-distance pipeline, transporting the majority of western Canada's abundant gas output to the most energy-hungry areas of the US. In stark contrast to its rivals to the south, Trans-Canada has maintained healthy growth. The company's A- rating from S&P is a testament to its staying power. Its low valuation of 1.9 times book value is a good indication of the high premium it will command when it finally receives an adquate bid. Buy up to 17.

"NiSource was saddled with a heavy debt load following its takeover of Columbia Energy in 2000. But its 16,130 mile pipeline and distribution system serving 3.7 million gas and electric customers in nine Midwestern and Northeastern states ranks as one of the top 'wires and pipes' franchises in America. The company continues to report steady profit growth, beating estimates by 38% and turning a loss to a profit in the third quarter, on the strength of cost cutting and debt reduction. The company's credit rating will be under pressure until it's able to reduce its debt burden from its currently high level of more than 60% of capital. The planned sale of its oil and gas exploration assets will further that goal. Selling at book value, the stock will only gain takeover value in coming months. NiSource is a bargain up to 22."

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