Transalta Corp (TA.TO)

On the surface, it looks like they will generate a lot of free cash flow per share, but their debt is huge and they plan to spend around $3.5 billion through 2028. Can they increase their dividend? What if interest rates go up a lot in coming years?  The dividend, though just increased, remains low. The PE is not cheap enough.

Excellent performance the past year given tough year with rising interest rates.
Current share price undervalued - should be $15 or $16.
Strong business that will continue to own shares in.
Renewable business roll-up not a concern.

Does not own shares in company.
Lower yield (~1%) than renewable side of business.
Would prefer other income generating stocks.

RNW is a yield proxy, and those have fallen, with decent yield and nice EPS growth. Parent company is taking it over, pending approval. The real question is what do you do with TA? Transaction looks slightly dilutive. Long term, bigger flow in a simplified structure, which could lead to a higher valuation. 

Backdrop for TA is really supportive, solid balance sheet, compelling free cashflow yield of 15%. Could be synergies. He likes TA post-closing.

Complicated organizational structure. Over-indexed to merchant power generation, which is unregulated. A series of misses on quarterly earnings. Pruned it out of the momentum portfolio when it wasn't performing. 

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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Its BV has fallen from $14 per share to $2 per share. The P/E is 28.6 and the yield only 1.8% which is low for utilities. This is because they are using money for buying back stock which should be paid out to shareholders. He doesn't give management much credit. As a rule he feels that buybacks may do a good job but the BV per share goes down over the years. Editor's Note - there was some discussion on this, to be continued later.