TC PipeLines, L.P. (TCLP) reported better-than-expected third quarter earnings of $28.3 million or $0.72 per common unit (our estimate was for $0.64 per common unit), compared to $24.6 million or $0.64 per common unit in the year-earlier quarter.

This reflected improved Tuscarora transmission results, lower financial charges, and increased equity income from Northern Border, partially offset by a fall in equity income from the Great Lakes. Importantly, the partnership maintained its third-quarter 2008 cash distribution at $0.705 per unit (or $2.82 per unit annualized).

Our new $33 price objective, reduced from $40 before, reflects a target distribution of $2.91 (reduced from the $3.07 estimate before) and a target yield of 9%, reflecting a 450 bps spread over our 10-year Treasury bond yield expectation of 4.5% over the next 12 months. We retain our Buy recommendation on TC PipeLines shares.