Is Transurban's (ASX:TCL) share price 18% undervalued?

Why a 'return to normal' should see Transurban's share price gain 18% from today's levels. And it could gain far more…

| More on:
green road sign with white up arrow representing rising atlas arteria share price

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Transurban Group (ASX: TCL) share price was down 0.5% at close of trade today.

That's broadly in line with the wider market moves, which saw the S&P/ASX 200 Index (ASX: XJO) fall 0.3% by the closing bell.

Still, October's been a good month for Transurban shareholders, with the share price up 6.2% so far this month. Following the massive COVID-19 driven sell-off in March, year-to-date the share price remains down 6.5%. 

So why do I think the Transurban share price is undervalued by at least 18%? We'll get to that in a tick. But first…

What does Transurban do?

Transurban is one of the world's largest toll road operators. Atop collecting toll payments from road users, the company also designs and constructs new road projects. Transurban is Australian-owned and operates in Melbourne, Sydney and Brisbane. It also runs toll roads in Montreal, Canada and the wider Washington DC area in the United States.

Transurban first listed on the ASX in 1996.

Why the Transurban share price could go up

Less than 8 months ago, on 20 February, the Transurban share price hit an all-time closing high of $16.26 per share.

That's just over 14% above today's price of $13.93 per share. This means if things were simply to 'return to normal' the share price could gain 18%.

And traffic counts on the company's toll roads indicate that the return to normal is already well under way.

At last week's annual general meeting (AGM), the company revealed that while average daily traffic (ADT) was still down 58.6% on its Melbourne tollways for the September quarter, traffic numbers in Sydney were up 1.5%.

That's not huge. But it does indicate that once restrictions are lifted, people are prone to return to their cars. And with angst over potential infections on public transport likely to linger in Australia and North America, car travel should see a boost from people turning away from buses and trains.

Then there's the multi billions of dollars in the recovery budgets that the Australian, US, and Canadian governments have pledged for infrastructure (including roads) projects. This should also offer long term gains for Transurban's road design and construction branches.

Connecting the dots, I believe Transurban's share price could be at least 18% higher by this time next year.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Transurban Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Man sitting in a plane seat works on his laptop.
Opinions

Expert reveals 2 ASX stocks to sell — and 1 is a recent IPO

Toby Grimm from Baker Young shares his insights.

Read more »

Happy teen friends jumping in front of a wall.
Share Gainers

Guess which 4 ASX 200 shares are rocking new 52-week highs today!

Investors just sent these four ASX 200 shares to one-year-plus highs.

Read more »

A young woman holds her hand to her mouth in surprise as she reads something on her laptop.
Broker Notes

Why are Platinum shares rocketing 13% today?

This fund manager is getting a lot of love from investors today. Let's find out why.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Share Gainers

Why Evolution Mining, Orthocell, Platinum, and Turaco shares are charging higher

These shares are having a better day that most on Thursday.

Read more »

A man sits in despair at his computer with his hands either side of his head, staring into the screen with a pained and anguished look on his face, in a home office setting.
Share Fallers

Why CSL, Imricor, Jumbo, and Netwealth shares are falling today

These shares are under pressure on Thursday. But why?

Read more »

Three happy office workers cheer as they read about good financial news on a laptop.
Broker Notes

Morgans says these ASX stocks can rise 30% to ~50%

Let's see which shares could generate big returns for investors.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Broker Notes

Does Macquarie rate Fortescue shares a buy, hold or sell?

The broker has given its verdict on this popular mining stock.

Read more »

group of traders cheering at stock market
Share Market News

We could see the ASX 200 at 9,000 points by 2026. Here's why.

I wouldn't be shocked to see more records this year...

Read more »