TRANSCANADA PIPELINES LTD

Where It Passes

Where It Falls Short

• Efficiency0% pass✓ 1✗ 10▾

  No clean pass — all 8 investors flag at least one efficiency criterion

  Current Ratio0.37

  ✗Graham>= 2.0

  ROIC (3-5 yr avg)4.6%

  ✗Buffett> 10%

  ROIC - WACC-5.4%

  ✗BuffettPositive (WACC = 10%)

  EBIT / (NWC + Net Fixed Assets)9.1%

  ✗Greenblatt> 25%

  Current Ratio Change YoY0.80 -> 0.37

  ✗PiotroskiIncreased YoY

  Revenue / Total Assets Change YoY0.14x -> 0.16x

  ✓PiotroskiImproved YoY

  Current Assets / Current Liabilities0.37

  ✗Dreman> 1.5

  Return on Invested Capital6.5%

  ✗Munger> 15%

  ROIC (high and growing)FY2015: ROIC=0.2%; FY2016: ROIC=2.9%; FY2017: ROIC=6.5%

  ✗AkreLatest 3 consecutive FYs: ROIC > 15% in each

  Reinvestment Rate x ROIC2.1% (RR=32% x ROIC=6.5%)

  ✗AkreReinvestment Rate * ROIC > 10%

  ROIC (5-year)0/5 years above 12% (latest 6.5%)

  ✗SleepROIC > 12% in a majority of years
• Debt & Leverage8% pass✓ 1✗ 14▾

  11 of 12 flag TCPA's debt & leverage — Graham, Buffett, Lynch +8 more

  LT Debt vs Net Current AssetsLT Debt $25.4B vs NCA $-6.2B

  ✗GrahamLT Debt <= Net Current Assets

  Debt/Equity & Interest CoverageD/E: 1.55, IC: 2.2x

  ✗BuffettD/E < 0.5 AND Interest Coverage > 5x

  Total Debt / Equity1.55

  ✗Lynch< 0.33

  Cash - Long-term Debt$-24.5B

  ✗LynchPositive preferred

  LT Debt / Total Assets Change43.57% -> 37.06%

  ✓PiotroskiDecreased YoY

  Current Assets / Current Liabilities0.37

  ✗Dreman> 1.5✗SchlossCurrent ratio >= 1.50x (app cutoff)

  Total Debt / Shareholders' Equity1.55

  ✗Dreman< 0.8✗Templeton< 1.0 (fixed cap; proxy for below-sector-median leverage)✗SchlossD/E < 1.00x

  Debt Levels1.55

  ✗MungerDebt/Equity < 0.5✗AkreDebt/Equity < 0.3

  Interest Coverage & Debt/EBITDAIC=2.2x, D/EBITDA=5.2x

  ✗MarksInterest Coverage > 3x; Debt/EBITDA < 4x

  Total Debt / Shareholders Equity1.55

  ✗Ackman<= 1.0

  Negative debt-to-equity (higher means less debt)-1.5498; #3618/4210 (top 85.9%)

  ✗AsnessTop 30% of eligible cross-section
• Valuation8% pass✓ 9✗ 19▾

  12 of 13 flag TCPA's valuation — Graham, Lynch, Greenblatt +9 more

  Price / Book Value per Share1.0x

  ✓Dreman< 1.2x✓Templeton< 1.5x✗SchlossP/B <= 0.80x (app cutoff)

  Price / 3-yr avg EPS

  ✗Graham<= 15x

  Price-to-Book Ratio1.0x

  ✓Graham<= 1.5x

  P/E x P/B

  ✗Graham<= 22.5

  Basic earnings-growth PEG (dividends excluded)

  ✗Lynch< 1.0 (ideally < 0.5)

  EBIT / Enterprise Value8.3%

  ✗Greenblatt> 10%

  Earnings Yield + ROC AssessmentEY=8.3%, ROC=9.1%

  ✗GreenblattBoth EY > 10% and ROC > 25%

  Price / EPS

  ✗Dreman< 12x✗Templeton< 12x (fixed ceiling; proxy for the market's cheapest 40%)

  Price / (CFO / Shares)4.4x

  ✓Dreman< 8x

  Valuation ReasonablenessOE Yield=-9.9%

  ✗MungerP/E < 25 or Owner Earnings Yield > 5%

  P/E or FCF YieldFCF Yield=-9.9%

  ✗PabraiP/E < 15 or FCF Yield > 10%

  P/B or P/E vs. Historical AverageP/B=1.0x

  ✓MarksP/E < 15 or P/B < 2.0

  Discount to Intrinsic Value

  ✗Marks>= 20% below intrinsic value

  Price / FCF per ShareN/A (negative FCF)

  ✗Ackman<= 25

  Price vs. Trailing Low103% of trailing low ($19.87)

  ✓Templeton<= 120% of trailing low (certified split-adjusted live window)

  Net income / market capitalization+13.80%; #414/6340 (top 6.5%)

  ✓AsnessTop 30% of eligible cross-section✓OshaughnessyTop 10% of eligible cross-section

  Positive book equity / market capitalization+0.9958; #1493/6449 (top 23.2%)

  ✓AsnessTop 30% of eligible cross-section

  Price / Diluted EPS

  ✗NeffP/E <= 15x (app proxy for a P/E 40%-60% below the market)

  (EPS CAGR % + Dividend Yield %) / P/E

  ✗Neff> 0.7 (Neff's published traditional edge)

  Price / Tangible Book Value per Share2.85x

  ✗SchlossP/TBV <= 1.00x (app cutoff)

  Book Value per Share Change-17.9%

  ✗SchlossLatest BVPS >= earliest BVPS over >= 3 years (app rule)

  Revenue / market capitalization+0.5974; #2385/5247 (top 45.5%)

  ✗OshaughnessyTop 10% of eligible cross-section

  (Operating cash flow - capex) / market capitalization-9.87%; #3228/4519 (top 71.4%)

  ✗OshaughnessyTop 10% of eligible cross-section

  Trailing six-month price return through the evaluation date-14.05%; #3665/6202 (top 59.1%)

  ✗OshaughnessyTop 10% of eligible cross-section
• Growth13% pass✓ 4✗ 9▾

  7 of 8 flag TCPA's growth — Graham, Lynch, Dreman +4 more

  EPS Growth (3-yr avg, 10-yr window)

  ✗Graham>= 33% growth

  Basic earnings-growth PEG (dividends excluded)

  ✗Lynch< 1.0 (ideally < 0.5)

  3-5 Year EPS CAGR

  ✗Lynch15-30% (Fast Grower); > 0% to pass

  Inventory Growth vs Revenue GrowthInv: 10.2% vs Rev: 15.0%

  ✓LynchInventory growth < Revenue growth

  EPS Growth Direction

  ✗DremanPositive over recent years

  EPS CAGR

  ✗Dreman> 5% annualized

  Positive Net Income Frequency7/8 years positive

  ✓MarksPositive net income in >= 7 of last 10 years

  3yr Median Revenue Growth13.7%

  ✓Ackman>= 5%

  Positive EPS Growth Frequency

  ✗AckmanPositive EPS growth in >= 3 of last 5 years

  5-Year EPS CAGR

  ✗Templeton> 0% (5-year EPS CAGR)

  Revenue growth vs. gross and operating margin trendrevenue up, operating margin 0.9% -> 34.8%

  ✓SleepRevenue rising; gross margin flat or falling; operating margin holding

  5-year Revenue CAGR5.9%

  ✗SleepCAGR > 7%

  3-5 Year Diluted EPS CAGR

  ✗Neff7%-20% annualized
• Verdicts14% pass✓ 2✗ 12▾

  Split decision: 11 FAIL · 3 NEUTRAL · 2 PASS

  Overall verdict

  ✗GrahamFAIL (2/9)✗BuffettFAIL (1/9)✗LynchFAIL (1/7)✗GreenblattRank #1100•PiotroskiNEUTRAL (F-Score 6)✓DremanPASS (6/11)✗MungerFAIL (1/4)✗PabraiFAIL (1/3)✗AkreFAIL (0/6)✗MarksFAIL (3/5)✓AckmanPASS (4/9)•TempletonNEUTRAL (5/8)✗SleepFAIL (2/6)•AsnessNEUTRAL (Not ranked)✗NeffFAIL (2/6)✗SchlossFAIL (1/7)✗OshaughnessyFAIL (Rank #339/963 (Top 35.2%))
• Profitability25% pass✓ 15✗ 20▾

  12 of 16 flag TCPA's profitability — Graham, Buffett, Lynch +9 more

  Positive EPS (10 years)0/8 years positive

  ✗GrahamPositive EPS every year for 10 years

  EPS Growth (3-yr avg, 10-yr window)

  ✗Graham>= 33% growth

  Net Income Positive (10+ years)7/8 years positive

  ✗BuffettPositive every year for 10+ years

  ROE (up to 5-year arithmetic mean)5.4%

  ✗Buffett> 15% arithmetic mean (app rule)

  Operating Margin (10-yr trend)34.8% (latest)

  ✗BuffettStable or rising over 10 years

  Free Cash Flow Proxy$2.5B

  ✓BuffettPositive and growing

  Earnings Variance (10-yr CoV)

  ✗BuffettCoV < 0.3

  Retained Earnings Effectiveness

  ✗Buffett$1 retained -> > $1 market value created

  Basic earnings-growth PEG (dividends excluded)

  ✗Lynch< 1.0 (ideally < 0.5)

  3-5 Year EPS CAGR

  ✗Lynch15-30% (Fast Grower); > 0% to pass

  ROE13.9%

  ✗Lynch> 15%

  EBIT / Enterprise Value8.3%

  ✗Greenblatt> 10%

  Earnings Yield + ROC AssessmentEY=8.3%, ROC=9.1%

  ✗GreenblattBoth EY > 10% and ROC > 25%

  Net Income / Total Assets3.61%

  ✓PiotroskiROA > 0

  ROA Change YoY0.37% -> 3.61% (delta: +3.25%)

  ✓PiotroskiCurrent ROA > Prior ROA

  (CFO / Total Assets) vs ROACFO/Assets=6.00%, ROA=3.61%

  ✓PiotroskiCFO/Assets > ROA

  Gross Margin Change YoY

  ✗PiotroskiImproved YoY

  Pre-Tax Income / Revenue24.1%

  ✓Dreman>= 8%

  Net Income / Shareholders' Equity13.9%

  ✓Dreman> 12%

  Margin of SafetyP/B=1.0x

  ✓PabraiP/B < 1.5 or P/E < 15

  Return on Equity3.1% (3-yr avg)

  ✗AkreROE > 20% (3-year avg)

  Discount to Intrinsic Value

  ✗Marks>= 20% below intrinsic value

  Positive Net Income Frequency7/8 years positive

  ✓MarksPositive net income in >= 7 of last 10 years

  Operating Income / Revenue34.8%

  ✓Ackman>= 15%

  Net Income / Shareholders Equity13.9%

  ✗Ackman>= 15%

  5-Year EPS CAGR

  ✗Templeton> 0% (5-year EPS CAGR)

  Operating Margin Trend0.9% (2015) -> 34.8% (2017)

  ✓TempletonNon-negative operating-margin trend over 3 years

  Revenue growth vs. gross and operating margin trendrevenue up, operating margin 0.9% -> 34.8%

  ✓SleepRevenue rising; gross margin flat or falling; operating margin holding

  Net income / market capitalization+13.80%; #414/6340 (top 6.5%)

  ✓AsnessTop 30% of eligible cross-section✓OshaughnessyTop 10% of eligible cross-section

  Gross profit / total assets

  ✗AsnessTop 30% of eligible cross-section

  Net income / positive book equity+13.86%; #1286/5226 (top 24.6%)

  ✓AsnessTop 30% of eligible cross-section

  Negative 5-year standard deviation of ROA-0.0205; #1459/5884 (top 24.8%)

  ✓AsnessTop 30% of eligible cross-section

  3-5 Year Diluted EPS CAGR

  ✗Neff7%-20% annualized

  Positive Diluted-EPS Years

  ✗Schloss>= 70% positive over 5-10 observed years (app rule)
• Cash Flow50% pass✓ 6✗ 6▾

  5 of 10 pass — Lynch, Pabrai, Ackman +2 more object

  Free Cash Flow Proxy$2.5B

  ✓BuffettPositive and growing

  FCF Positive and Growing$-1.8B

  ✗LynchPositive and growing

  Operating Cash Flow$4.1B

  ✓PiotroskiCFO > 0

  (CFO / Total Assets) vs ROACFO/Assets=6.00%, ROA=3.61%

  ✓PiotroskiCFO/Assets > ROA

  Price / (CFO / Shares)4.4x

  ✓Dreman< 8x

  P/E or FCF YieldFCF Yield=-9.9%

  ✗PabraiP/E < 15 or FCF Yield > 10%

  FCF Positive5/8 years FCF positive

  ✓MarksPositive FCF in majority of recent years

  (OCF - CapEx) / Market Cap-9.9%

  ✗Ackman>= 4%

  Price / FCF per ShareN/A (negative FCF)

  ✗Ackman<= 25

  Positive Operating Cash Flow frequency8/8 years positive

  ✓SleepPositive OCF in >= 70% of available years

  Operating Cash Flow - Capital Expenditures$-1.8B

  ✗Neff> $0 (app proxy for a strong fundamental case)

  (Operating cash flow - capex) / market capitalization-9.87%; #3228/4519 (top 71.4%)

  ✗OshaughnessyTop 10% of eligible cross-section
• Valuation models50% pass✓ 2✗ 2▾

  Models split on TCPA at $20.55 — fair values range $4.52–$33.51

  Buffett fair value$33.51

  ✓Buffett+38.7% margin vs $20.55

  Greenblatt fair value$16.66

  ✗Greenblatt-23.3% margin vs $20.55

  Pabrai fair value$4.52

  ✗Pabrai-354.6% margin vs $20.55

  Akre fair value$25.93

  ✓Akre+20.7% margin vs $20.55