Wednesday, April 1, 2015

TransAlta Corp. 2

On my other blog I am today writing about doing the same thing and computers continue...

Sound bite for Twitter and StockTwits is: Stock is cheap on some basis. The stock may be cheap on some basis like P/CF Ratio and P/S Ratio, but it is risky and may need a long while to recover. See my spreadsheet at ta.htm.

I own this stock of TransAlta Corp. (TSX-TA, NSYE-TAC). I bought this stock in 1987. It was a utility stock and utility stocks were considered to be good investments.

When I look at insider trading over the past year, I find a small amount of insider buying and an even smaller amount of insider selling. Insider Buying is $1.8M and net Insider Buying is $1.8M. Insider Buying is some 0.6% of the stocks market cap.

In 2014 and also in 2013 outstanding shares have not been increased by stock options. Outstanding shares were increased for stock options prior to 2013. This makes sense as company is having problems and the stock price is dropping.

The 5 year low, median and high median Price/Earnings per Share Ratios are 14.85, 16.29 and 17.74. There are lower than the corresponding 10 year values of 17.76, 21.87 and 25.07. The current P/E Ratio is 40.21 based on a stock price of $11.66 and 2015 EPS estimate of $0.29. The EPS estimate for 2015 is some 44% lower than the EPS for 2014. There is a big range for EPS estimates for 2015 from $0.14 to $0.48. The stock price testing does suggest that the stock price is relatively high. However, looking at P/E Ratios for testing the stock price of this stock may not be a good price measure.

I get a Graham Price of $7.45. The 10 year low, median and median high Price/Graham Price Ratios are 1.15, 1.38 and 1.64. The current P/GP Ratio is 1.56. This stock price testing suggests that the stock price is relatively high.

I get a 10 year Price/Book Value per Share Ratio of 1.82. The current P/B Ratio at 1.37 is some 25% lower. The current P/B Ratio is based on a stock price of $11.66 and BVPS of $8.52. This stock price testing suggests that the stock price is relatively cheap. However, there are also problems with using BVPS for testing the stock price. The BVPS has been going down since 2011. Over the past 5 years, the BVPS is down by 8.7% per year or almost 37%.

The 5 year median Dividend Yield is 6.61% a value just 6% above the current Dividend Yield of 6.17%. Ideally you want the current Dividend Yield to be higher than the median. However the current Dividend Yield is only 7% lower than the 5 year median Dividend Yield. The historical average and historical median Dividend yields are at 6.03% and 5.81% are 2.5% and 6% lower than the current Dividend Yield.

This Dividend Yield testing suggests that the stock price is relatively reasonable. The problem, of course, is that the dividends have recently been decreased by 40% so you have to wonder how good this test is.

If you look at Price/Cash Flow per Share Ratio, the 10 year median P/CF Ratio is 6.84. The current P/CF Ratio at 3.64 is some 43% lower. The current P/CF Ratio is based on 2015 CFPS estimate of 2.31 and a stock price of $11.66. This stock price test suggests that the stock price is relatively cheap.

The 10 year median P/S Ratio is 1.75. The current P/S Ratio is 1.26 based on 2015 Revenue of $2551M, Revenue per Share of $9.28 and stock price of $11.66. The current P/S Ratio is some 28% lower than the 10 year median ratio. This stock price test suggests that the stock price is relatively cheap.

When I look at analysts' recommendations, I find Buy, Hold and Underperform Recommendations. Most of the recommendations are Underperform. The consensus recommendation is Underperform. The 12 month consensus stock price is $12.10. This implies a total return of $9.95% with $3.77% from capital gains and 6.17% from dividends.

This article in the Financial Post talks about TransAlta Corp.'s Australian power generation and gas pipeline portfolio. This recent article from Wall Street Pulse talks about what TransAlta shares have been doing. This Motley Fool article by Andrew Walker talks about whether or not you should buy this stock.

The Blogger My Own Advisor had a negative take on this stock in July 2014. In July 2014, the Investment Report removed this stock from its list of Key Stock.

This is the second of two parts. The first part was posted on Tuesday, March 31, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

TransAlta Corp. is Canada's largest investor-owned, unregulated power generation and energy-marketing company. The company owns and operates power plants in North America and Australia. Its web site is here TransAlta.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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