Friday, September 28, 2012

Atlantic Power Corp 2

I do not own this stock (TSX-ATP, NYSE-AT). I used to think that power companies were a good idea. However, I would not want this one. It is not making any money and it is paying a lot in distributions. Not a good idea in my books. This was an Income Trust (TSX-ATP.UN), but on November 17, 2009 this company changed to a traditional common share structure.

The insider trading report shows no insider buying and no insider selling. There is not much information in the report because if insiders do not buy or sell shares, no information is collected on them. The CEO has shares worth some $4M and one officer has shares worth around $1M. There does not seem to be any options, but there are Deferred Share Units.

There are some 172 institutions that hold 35% of the outstanding shares. Over the past 3 months they have increased their shares by 4.3%. This is a positive. However, institutions do tend to buy shares that are on the stock exchange, especially those in an index. This stock is part of the S&P/TSX Capped Utilities Index. According to a recent article in the Globe and Mail Caisse de dépôt et placement du Québec owns 19% of the outstanding shares.

First of all I cannot do a Price/Earnings Ratio test as EPS has been negative. I have the same problem with the Graham No. I cannot calculate one when the EPS is negative.

The 10 year Price/Book Value per Share Ratio is 2.79. The current P/B Ratio is 2.07. That means that the current ratio is 74% of the 10 year ratio and suggests the stock price is relatively low.

The 5 year median dividend yield is 9.68% and the current dividend yield is almost 20% lower at 7.82. The dividend yield test says that the stock price is relatively high.

When you have mixed results on these tests, you should go with the dividend yield test unless you have specific reasons not too. The dividend yields are very high. Often they are very high because people are worried about the ability of the company to pay dividends. The lower dividend yield might indicate that people are feeling better about this stock, or maybe just less badly about it.

When I look at the analysts' recommendations, I find Buy, Hold and Underperform recommendations. The most recommendations are in the Hold category and the consensus recommendation would be a Hold. The 12 month stock price consensus is $14.27. This implies a total return of 4.89%, with 7.82% coming from dividends and a capital loss of 2.93%.

I notice that analysts talk about EBITDA and AFFO on this stock. (These acronyms mean "Earnings before Interest, Tax, Depreciation and Amortization" and "Adjusted Funds from Operations".) This is nice, but I never think that it is a substitute for earnings. Sorry, but I am rather old fashion when it comes to stocks, I like my stocks to earn money.

An article at windfair talks about an Atlantic Power Corp investment in a wind power project. The website Top Stock Picks also talks about purchases of this company.

One hold recommendation thought that the stock was fairly valued (that is the stock is valued current at what it is worth). One analyst who said not to buy said that the high payout rate (92% of AFFO) means no dividend increases and perhaps the high yield is not sustainable either. Another analyst thought there might be better power companies to buy. I cannot find any positive comments on this company, so I do not know why we have a Buy recommendation.

I could not buy this stock and sleep at night. I would be worried about it having financial problems and going belly up. It seems to be playing its finances close to the edge. Yield is high, debt ratios are not great and it cannot seem to be able to make a profit.

Atlantic Power Corporation is an independent power producer that owns interests in a diversified fleet of power generation and transmission projects located in the United States. This company has a collection of gas-fired plants in the US and is generally in the lower cost quadrant of generation in its region. ATP owns interests in a diversified portfolio of independent, non-utility power generation projects and one transmission line situated in major U.S. markets. Its web site is here Atlantic Power. See my spreadsheet at atp.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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