TransAlta Corp

Sound bite for Twitter and StockTwits is: Utility with issues. On a number of stock price tests this stock is show as relatively cheap. However, make no mistake, this company would be of a higher risk that most utility stocks. Most utility stocks are regarded as safe stocks to buy. This would not be considered a safe stock to buy. 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. I sold some in 2000 as the stock price was below what I had paid for it. I bought some more in February 2009 because it was relatively cheap and it seemed to be recovering. I sold more in August 2012 as this company was doing poorly again.

This stock is not the disaster you might think it is with my buy and hold tendencies. I have made a total return of 6.09% per year on this stock. This is all dividends as the stock is worth less than what I paid for it in 1987. On the other hand dividends have paid 163% of the cost of my stock. This is, of course, not great, but neither is it that bad.

This utility was never much of a dividend growth company. It is even less of one now having cut their dividends by some 78% starting in 2014. The dividends have declined today over the past 5 and 10 years by 23.7% and 11.3%.

Hopefully this is the end of dividend cuts. The dividends seem now to be more affordable. The Dividend Payout Ratio for EPS for 2016 is 73 % and for 2017 it is expected to be 59%. I notice there is a lot of difference in the estimate for 2019. The problem with estimates given today for 2019 is that the further out the estimates the fewer analysts there are giving estimates. The DPR for CFPS for 2016 is 13% and is expected to be around 5% in 2017. By this it would seem that the current dividend level will be fine going forward.

When I was at the last Money Show in Toronto, one of the speakers said of TransAlta that they have been destroying shareholders value for the last 20 years. That was rather harsh. However, when I look at my spreadsheet, I do see an awful lot of red. A bright point is that Comprehensive Income has been increasing by 64% and 16% over the past 5 and 10 years. The reason that the 5 year growth is so good is because 5 years ago was a really bad year for Comprehensive Income. A counter point for this is that if you look at 5 year running averages for the past 5 years, Comprehensive Income is down by 28.6% per year. This means that the last 5 years of comprehensive Income is lower than the 5 years previous (or years 6 to 10). Unfortunately, Comprehensive Income hit a peak in 2014 and has been declining since then.

The debt ratios are rather mediocre. (They are interestingly enough better than Enbridge which I just reviewed.) The Liquidity Ratio for 2016 is 1.28. At least the current assets cover current liabilities. If you add in cash flow after dividends the ratio becomes 1.82.

The Debt Ratio is 1.47 and it has a 5 year median of 1.58. I like to see this ratio at 1.50. The Leverage and Debt/Equity Ratios are 3.13 and 2.13 respectively with 5 year median at 2.74 and 1.74. (These are also better than Enbridge was.)

The 5 year median Price/Earnings per Share Ratios are not valid because of recently EPS losses. The 10 year low, median and high median P/E Ratios are 15.19, 17.56 and 20.26. The historical P/E Ratios are 14.85, 16.45 and 21.19. The current P/E Ratio is 26.67. This stock price testing suggests that the stock price is relatively expensive. I wonder how valid this test is because of recent EPS losses.

I get a current Graham Price of $5.47. The 10 year low, median and high median Price/Graham Price Ratios are 1.13, 1.30 and 1.51. The current P/GP Ratio is 1.32 based on a stock price of $7.20. This stock price testing suggests that the stock price is relatively expensive.

I get a 10 year Price/Book Value per Share Ratio of 1.73. The current P/B Ratio is 1.46 based on BVPS of $4.92 and a stock price of $7.20. The current P/B Ratio is some 15.5% lower than the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median. On an absolute basis, a P/B Ratio under 1.50 suggests that the stock price is cheap.

Because of declining dividends, I think that the dividend yield test would not show us anything valid.

I have statistics on AFFO for the past 6 years. The 5 year low, median and high median Price/AFFO Ratios are 5.16, 10.28 and 15.40. The current P/AFFO Ratio is 6.05. This is some 41% below the 5 year median P/AFFO Ratio. This would suggest that the stock price is cheap to reasonable. It is certainly below the median.

The 10 year P/S Ratio is 1.72. The current ratio is 0.88 based on Revenue estimate of $2,468M for 2017 or Revenue per Share of $8.59. The current ratio is some 51% below the 10 year median. This stock price testing suggests that the stock price is relatively cheap.

The 10 year Price/Cash Flow per Share Ratio is 5.78. The current P/CF Ratio is 2.39. The current P/CF Ratio is based on 2017 CFPS estimate of $3.01. The current P/CF Ratio is some 58.6% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

When I look at analysts' recommendations, I find Buy, Hold and Underperform Recommendations. However, the vast majority is a Hold and the consensus recommendation would be a Hold. The 12 month stock price if $7.73. This implies a total return of 9.58% with 7.36% from capital gains and 2.22% from dividends.

Nelson Smith of Motley Fool thinks this stock is cheap and a great current buy. Basically he says that the stock is price at the value of its investment in TransAlta Renewables and you are getting the rest of the company for free. Andrew Walker of Motley Fool talks about the fact that TransAlta has made a deal with the current Alberta Government and this is good news.. Jamie Williams on Daily Quint says that Zacks Investment Research upgraded shares of TransAlta Corporation from a Sell rating to a Buy rating. See what analysts are saying about this stock on Stock Chase. Mostly they do not care for it.

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.

The last stock I wrote about was about was Enbridge Inc. (TSX-ENB, NYSE-ENB)... learn more . The next stock I will write about will be TransCanada Corp. (TSX-TRP, NYSE-TRP)... learn more on Monday, March 20, 2017 around 5 pm.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk. The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.