Opinions Stockchase Insights
Transalta CorpTA.TODON'T BUYApr 19, 2023
Stockchase InsightsStock price when the opinion was issued
As of Jun 05, 2026. Market Open.
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The whole idea that we're going to see massive demand for energy from data centres ignores the fact that innovation is going to reduce consumption. It's a bit of a mistake to play the AI trade through utilities.
Likes that it bought assets on sale. Hopefully they're good assets, and they might turn out to be very good once gas prices normalize. Time will tell. Sees the move as positive, not negative. Good operator.
Yield is 1.5%, quite low, so it means the dividend is relatively secure. Demand for more power, especially in Alberta, means it has a number of projects on the go and footprint will expand.
Not a bad quasi-utility to have a stake in, but current price may not be best entry point.
Benefits from data centre growth, nation-building themes, natural gas tailwinds from getting offshore. Issues with last quarter, but not material. Trades at a reasonable level of ~17x PE for very sharp EPS growth of 50-60% over next couple of years.
Lots of data centre upside. Yield is 1.65%
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Premium contentBig electricity-generating utility. Mostly in Alberta, with a presence in US and very small presence in Australia. He's not interested.
Endeavouring to grow its low yield of ~1.1%. Cut dividend by 78% in 2015, ratcheting upward since. Not profitable on bottom line, which is anomalous for a utility. Fairly highly levered (though that's not unusual). Not investment-grade credit rating.
Power generation, which explains the couple of rips this year on enthusiasm of Alberta data centres. The power demand is real, even if he can't predict which AI companies will be the winners. Alberta has surplus energy and lower regulatory hurdles.
He's not in the binary game of will it happen or won't it. See his Top Picks for a more diversified business.
Premium contentPremium contentPremium contentPremium contentPremium contentLong a favourite of Stockchase Michael O'Reilly, this Alberta renewable energy company sank over 2% during April's tariff-induced slide. The sell-off helped to halve TA's PE of 40x from last September, and is now trading far lower than the industry's 33x. Even better, is the confident forward PE of 33.57x. Other qualities: a low beta of 0.55 and low payout ratio of 40% to support the 2.12% dividend yield. True, that yield lags its peers by 150 basis points or more, but TransAlta's ROE is 25.3%, towering over the sector's 8.97%. Anchored by strong free cash flows, the company is aggressively buying back shares as institutional shareholders own 67% of this stock. Lower interest rates are a tailwind for the entire sector
Premium contentTA holds a basket of high-quality power generation facilities including renewables. The company is prudently using some cash reserves to aggressively retire debt and buy back shares. It trades at 21x earnings and supports a 25% ROE. We recommend setting a stop-loss at $9.50, looking to achieve $16.00 -- upside potential of 28%. Yield 1.9%
(Analysts’ price target is $18.33)He's looking at it. It's softened up considerably. Decent dividend payer, cut a few years ago but now back on track. High-quality company with share price having sold off. An opportunity, but he hasn't pulled the trigger yet.
Spike on chart due to strong earnings and a bunch of analysts giving it a "Buy". Got ahead of itself. Disappointment recently. He doesn't like buying at all-time highs, where there's often more downside than upside.
A operates as a renewable energy producer, and is now trading at 19x times' Forward P/E.
In the last five years, sales grew around 5% on average.
The balance sheet is quite leveraged, with net debt of $3.3B.
Total debt is around 3.8x times trailing twelve-month cash flow of $900M, and cash flow declined around -11% compared to $1.0B last year.
Based on consensus estimates, sales are expected to decline by -15% in 2023.
As sales and EBITDA are expected to decline in the next few years, TA is trading at quite a premium multiple to peers, we think there are better opportunities in the market such as ENB, BEP.UN.
TA has also in the past had to cut its dividend, which we never like when considering an income stock.
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