Wednesday, March 23, 2016

TransAlta Corp.

Sound bite for Twitter and StockTwits is: Price is Cheap. At the moment I am holding on to my shares because I am betting that the company will recover rather than go bankrupt. I guess we shall see. See my spreadsheet on TransAlta Corp.

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.

There is some good news. The company for the first time in a very long while has a Liquidity Ratio above 1.00. Even with adding in cash flow after dividends it did not often get to 1.00. The problem with a low Liquidity Ratio is that it leaves a company vulnerable in bad times. When the Liquidity Ratio is below 1.00, it means that current assets do not cover current liabilities. The Liquidity Ratio for 2015 is 1.36. It is not up to the 1.50 I like, but it is above 1.00. This is a positive development.

It is also interesting that last year the Net Insider Selling was a negative 0.06%. That is insiders were mostly buying shares. Over the past year the NIS is at 0.43%. This is relatively a lot of selling. The median NIS on the stocks that I follow is 0.03%, with 75% at 0.11% or less. So this is a negative.

I also find it interesting that although TD Securities issued a Buy recommendation on this stock that it qualified it by giving it a risk level of High. Most utilities have a risk level of Low. I note that in July 2014 the Investment Report removed this stock from it list of investments and advised its readers to sell this stock. They thought at that time there would be a further dividend decrease. They were correct on that point.

I did do some buying and selling this stock since my initial purchase in 1987. I have earned a total return of 5.91% per year with capital loss of 5.62% per year and dividend s at 11.53% per year. My dividends have covered more than the cost of this stock. My ACB is $16.89 per share. I have earned dividends of $27.02 per share. However, when I look at my spreadsheet all I see is red. Everything is declining from Revenues to Earnings to Cash Flow.

Since there have been a few years of earnings losses, the Price/Earnings per Share Ratios for the last 5 and 10 years make no sense. However, I have historical values as I have information back to 1987. My historical low, median and high median P/E Ratios are 14.85, 16.60 and 21.19. These are not out of line with other Power type Utilities stocks. The current P/E Ratio is 15.61 based on a stock price of $5.62 and 2016 EPS estimate of $0.36. This stock price testing suggests that the stock price is reasonable and below the median.

I get a Graham Price of $8.31. The 10 year low, median and high median Price/Graham Price Ratios are 1.15, 1.38 and 1.62. These are rather high for a utility stock. However, the current P/GP Ratio is 0.68 based on a stock price of $5.62. Normally a P/GP Ratio of less than 1.00 says that the stock price is cheap.

This stock has a 10 year Price/Book Value per Share Ratio 1.82. The current P/B Ratio is 0.66 based on a stock price of $5.62 and BVPS of $8.52. The current P/B Ratio is 64% below the 10 year P/B Ratio. Also a ratio below 1.00 says that the stock is selling below its breakup price. In any event, this stock price testing suggests that the stock price is cheap.

I cannot do valid testing on the dividend yield, but testing with P/S and P/CF Ratios suggest that the stock price is cheap.

When I look at analysts' recommendations, I find Buy, Hold and Underperform. Most of the recommendations are a Hold and the consensus recommendation is a Hold. The 12 month stock price consensus is $6.13. This implies a total return of 11.92% with 9.07% from capital gains and 2.85% from dividends based on a current price of $5.62.

Nelson Smith of Motley Fool in this article talks about why he is long TransAlta. He believes that investors should give the company time to work through its troubles. However, he thinks this turnaround will not come soon. It may take a while. Interestingly, this article by Dan Healing in the Calgary Sun talks about the company shutting down a wind power site in Alberta. This article on Business Standard Tribute talks about recent Hold ratings given for this stock. There is also a recent article on Wall Street Org about this company being possible underpriced.

I will have only one entry for this stock this year. However, I did a more complete report on this company in 2015 and you can see these reports here and here.

The last stock I wrote about was Melcor Developments Inc. (TSX-MRD, OTC-MODVF)...learn more. The next stock I will write about is TransCanada Corp. (TSX-TRP, NYSE-TRP)... learn more on Friday, March 25, 2016 around 5 pm.

Also, on my book blog I have put a review of the book The Happiness Advantage by Shawn Achor. learn more...

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 Corp.

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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