Should you buy this defensive ASX 200 stock on a pullback?

This stock has stuttered, can operational growth drive it higher?

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The Transurban Group (ASX: TCL) share price has dropped 15% in the past year, significantly underperforming the S&P/ASX 200 Index (ASX: XJO), which is up almost 8% in the same period.

As a toll road operator in Australia and North America, investors may wonder whether the ASX 200 stock is a buying opportunity, considering its potential to be a defensive ASX share.

The first step is to examine Transurban's operational performance and then consider whether its valuation is cheap enough to invest in. Let's dig in.

Quarterly recap

In its quarterly report for the three months to 31 March 2024, Transurban reported that group average daily traffic (ADT) increased by 0.9% year over year compared to the third quarter of FY23.

Looking at year-over-year ADT growth for the individual markets, Sydney was up 0.7%, Melbourne increased 1.6%, Brisbane ADT fell 1.1%, and North American ADT grew 4.9%.

The timing of Easter in 2024 compared to 2023 reduced ADT by approximately 1.5% across the group in the FY24 third quarter. Excluding the Easter timing impact, the group would have seen 2.4% total ADT growth, with 2.1% growth for Sydney, 2.9% for Melbourne, 0.9% for Brisbane and 6.5% for North America.

The defensive ASX 200 stock reported the quarter's traffic uplift was largely driven by a higher workday ADT and airport-related travel, offset by construction and weather impacts.

In Sydney, WestConnex traffic increased 9.7%, including a full quarter contribution from the Rozelle Interchange. Higher traffic on the WestConnex was supported by an estimated 10,000 trips per day redistributed from across the Sydney portfolio following the opening of the Rozelle Interchange.

Is the Transurban share price a buy?

The ASX 200 share says macroeconomic projections continue to indicate larger, denser, and wealthier futures for the cities in which Transurban operates. This is expected to drive the "need for increased travel, the continued development of new roads and increased congestion".

Transurban isn't growing rapidly, and a higher cost of debt over the long term may be a headwind, but I think this lower Transurban share price can appeal to income-focused investors.

The defensive ASX 200 share is expected to pay a full-year distribution of 62 cents per security, translating into a forward distribution yield of around 5%.

I'd call it a conservative buy. I don't think it's going to materially outperform the market until interest rates start coming down. However, it continues to see traffic growth, and it's working on projects that can expand its total capacity, which could help it climb slowly but steadily.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Transurban Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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