TAC  Transalta Corporation

Exchange

NYSE

Sector

Public Utilities

Industry

Electric Utilities: Central

Market Cap.

1.58B

Vuru Grade

41.50/100

Current Price

$5.50
-0.05 (-0.90%)

Growth Price

$10.05
Undervalued by 82.78%

Company Metrics

  • P/E 41.98
  • P/S 0.92
  • P/B 0.85
  • EPS 0.13
  • Cash ROIC 0.87%
  • Cash Ratio 0.06
  • Dividend 0.12 / 2.17 %
  • Avg. Vol. 65,500.00
  • Shares 287.27M
  • Market Cap. 1.58B

Company Description

TransAlta Corporation operates as a non-regulated electricity generation and energy marketing company. The company engages in the production and sale of electric energy through its diversified portfolio of facilities fuelled by coal, natural gas, hydroelectric, wind, geothermal, and biomass resources in Canada, the United States, and Australia. It has an aggregate net ownership interest of approxi... more


Download 10 Years of Financial Statements:
Income Statement   Balance Sheet   Cash Flow

News

TransAlta Corporation: Time to Buy This Stock?
The Motley Fool Canada - Nov 24, 2016
TransAlta Corporation (TSX:TA)(NYSE:TAC) has been in a downtrend for the past eight years, but better days might finally be on the horizon.
TransAlta moving ahead with hydro project after deal on coal shutdowns - Calgary Herald
Alberta strikes $1.36-billion deal with power companies to end coal-fired ... - The Globe and Mail
TransAlta Corporation (USA) (TAC) is Downgraded by National Bank Financial to ...
Highland Mirror - Feb 13, 2017
TransAlta Corporation (USA) (TAC) was Downgraded by National Bank Financial to ” Sector Perform”. Earlier the firm had a rating of “Outperform ” on the company shares.
TransAlta Corporation (USA) (NYSE:TAC) has been downgraded to Sector Perform ... - Breaking Finance News
TransAlta Corporation - Receive News & Ratings Daily - BBNS
Is TransAlta Corporation Canada's Cheapest Stock?
The Motley Fool Canada - Feb 14, 2017
As a value investor, seeing stocks hit new all-time highs is a little bittersweet. I'm happy my existing stocks are doing well, of course.
TransAlta Corporation (TAC) Downgraded by National Bank Financial to Sector ... - The Cerbat Gem
Brookfield Asset Management Inc. Holds Position in TransAlta Corporation (TAC) - Sports Perspectives
TransAlta Corporation: Is it Finally Time to Own This Stock?
The Motley Fool Canada - Dec 9, 2016
TransAlta Corporation (TSX:TA)(NYSE:TAC) has been a dud for several years, but recent developments in Alberta could signal better times on the horizon.
TransAlta Corporation: Is a Dividend Increase in the Works?
The Motley Fool Canada - Jan 16, 2017
TransAlta Corporation (TSX:TA)(NYSE:TAC) finally appears to be on the road to recovery. Let's take a look at the beleaguered power producer to see if it deserves to be in your dividend portfolio.
Contrarian Investors: Is TransAlta Corporation a Top Turnaround Pick?
The Motley Fool Canada - Dec 20, 2016
TransAlta Corporation (TSX:TA)(NYSE:TAC) has been a dog for most of the past five years, but recent events suggest the dark days might be over.
TransAlta vs. TransAlta Renewables: Which Utility Provides The Better Dividend? - Baystreet.ca
Is There Free Money to Be Had at TransAlta Corporation?
The Motley Fool Canada - Jan 30, 2017
Looking at shares of TransAlta Corporation (TSX:TA)(NYSE:TAC) for the first time, it would seem there is potentially free money to be had by buyers at the current price.
TransAlta Corporation (TAC) Receives Consensus Rating of “Hold” from Brokerages - The Cerbat Gem
Why TransAlta Corporation Remains an Unattractive Investment
The Motley Fool Canada - Apr 21, 2016
The last year has been challenging for TransAlta Corporation (TSX:TA)(NYSE:TAC) as it has faced a range of headwinds. Among them were the penalties levied by the regulator in Alberta for price manipulation and the introduction of tough new greenhouse ...
Should Investors Buy TransAlta Corporation or TransAlta Renewables Inc.?
The Motley Fool Canada - Oct 21, 2016
Power producers are stalwarts in many portfolios, as investors are attracted to their stable cash flows, predictable stock prices, and, perhaps most importantly, some of the best dividends the market has to offer.
Why TransAlta Corporation and Capital Power Corp. Exploded Higher Today
The Motley Fool Canada - Nov 25, 2016
Friday is shaping up to be a very good day for TransAlta Corporation (TSX:TA)(NYSE:TAC) and Capital Power Corp. (TSX:CPX), two struggling power producers that are overexposed to coal-fired energy.
TAC Stock Jumps Nearly 25%: Is TransAlta Corporation (USA) A Good Stock to Buy? - BNL Finance (press release) (registration) (blog)
Growth Rate Assumed by Market

We did a reverse valuation to calculate the growth rate the market is assuming for TAC to be considered fairly valued at its current market price. It's useful to compare this to the growth rate we're assuming for the Growth Price.

Future Free Cash Flow Growth Rate

This is the annual growth rate we've applied to calculate TAC's Free Cash Flow for the next 10 years. To calculate it, we looked at several time periods of the last 10 years. Feel free to adjust it, but we limit the initial growth rate to 20% and slow it down over the years. Otherwise, long-term sustainability issues come into play.

Discount Rate

The discount rate is the annual rate of return an investor requires to take the risk of investing in a single stock. To account for that risk, this should be above 8-10%, as this is the avg. annual rate of return for the S&P500 over the past 100 years.

$5.50 Current Price

$10.05 Growth Price (DCF)

Undervalued by 82.78%


Growth Rate Assumed by Market: -349.18%


Future Free Cash Flow Growth Rate: 0.0%


Discount Rate: 15.0%


TAC's most recent year of (normalized) free cash flow is negative. This is the base number for forward projections. This means that if you increase the growth rate, the amount of negative FCF grows, thereby decreasing the price.

Show Free Cash Flow numbers

$14.43 Book Price

Undervalued by 162.40%


Poor Cash Return on Invested Capital over the past 5 years

TAC has been unable to consistently generate sufficient returns from its investments in buildings, projects and equipment. This could be due to poor management, lack of an economic moat or the capital intensive nature of the business.

TAC has only created $0.87 of cash for every $100 invested.
Figures in CAD. Fiscal year ends in December
20112012201320142015
Free Cash Flow 211.00M -222.00M 172.00M 275.00M -70.00M
divided by
Invested Capital 8.13B 8.04B 8.87B 8.34B 10.04B
Cash ROIC 2.60% -2.76% 1.94% 3.30% -0.70%

Poor Return on Equity over the past 5 years

TAC has shown an inability to deliver strong results for shareholders. This could be due to poor management, TAC operating in a highly competitive industry, or having a weak business in general.

TAC has only generated $0.31 of Earnings for every $100 of Shareholders' Equity.
Figures in CAD. Fiscal year ends in December
20112012201320142015
Net Income 305.00M -546.00M -4.00M 232.00M 116.00M
divided by
Stockholders' Equity 3.27B 3.01B 2.91B 3.28B 3.36B
Return on Equity 9.33% -18.14% -0.14% 7.06% 3.45%

Good Business Performance over the past 10 years

It's likely TAC has been unable to maintain profitability in tough economic times, making it a somewhat cyclical business. The other possibility is TAC has expended significant capital on items such as property, plant and equipment in specific years. Look for correlations.

TAC has created positive free cash flow for 7 or 8 of the past 10 years.
Figures in CAD. Fiscal year ends in December
2006200720082009201020112012201320142015
Free Cash Flow 265.90M 248.10M 31.57M -324.00M 21.00M 211.00M -222.00M 172.00M 275.00M -70.00M

Weak Balance Sheet

TAC's financial position is not ideal. The key is to check whether TAC is using debt to fuel its growth and the sustainability of that tendency. Highly capital intensive businesses (see Economic Moat) follow this route, which can deeply impact the future prospects of the business.
Figures in CAD. Fiscal year ends in December
2006200720082009201020112012201320142015
Cash 65.60M 50.90M 49.78M 226.00M 323.00M 440.00M 27.00M 62.00M 43.00M 54.00M
Current Assets 897.00M 818.50M 913.06M 838.00M 860.00M 1.12B 938.00M 747.00M 854.00M 1.16B
Total Assets 7.46B 7.18B 7.81B 9.76B 9.89B 9.76B 9.45B 9.78B 9.83B 10.95B
Current Liabilities 1.40B 1.50B 1.64B 843.00M 1.17B 1.19B 1.39B 852.00M 1.45B 853.00M
Total Liabilities 5.03B 4.88B 5.30B 6.83B 6.72B 6.49B 6.44B 6.88B 6.55B 7.59B
Stockholder' Equity 2.43B 2.30B 2.51B 2.93B 3.18B 3.27B 3.01B 2.91B 3.28B 3.36B
Current Ratio 0.64 0.54 0.56 0.99 0.73 0.94 0.68 0.88 0.59 1.36
TL-to-TA 0.67 0.68 0.68 0.70 0.68 0.67 0.68 0.70 0.67 0.69

Low or No Reinvestment of Profits over the past 10 years

TAC has either been retaining a small amount of their earnings or has done so inconsistently. A lack of consistency could be due to TAC operating at a loss or them having such a strong economic moat they feel comfortable spending profits on growth. Be wary of future prospects and if applicable, inspect the moat's sustainability.
Figures in CAD. Fiscal year ends in December
2006200720082009201020112012201320142015
Retained Earnings 710.00M 762.50M 688.44M 634.00M 533.00M 527.00M -358.00M -735.00M -770.00M -1.02B
Retained Earnings Growth - 7.39% -9.71% -7.91% -15.93% -1.13% -167.93% -105.31% -4.76% -32.21%

Highly Competitive Industry over the past 10 years

It's likely that TAC is in an industry with low barriers to entry, spurring high competition. If Gross Margins are at least satisfactory, it's likely TAC invests heavily in R&D and Sales, General & Administrative expenses.

Only $3.57 of every $100 of Revenue have been profit, on average over the past 10 years.
Figures in CAD. Fiscal year ends in December
2006200720082009201020112012201320142015
Net Income 44.90M 308.80M 235.55M 181.00M 219.00M 305.00M -546.00M -4.00M 232.00M 116.00M
divided by
Revenue 2.80B 2.77B 3.11B 2.77B 2.82B 2.66B 2.26B 2.29B 2.62B 2.27B
Net Profit Margin 1.61% 11.13% 7.58% 6.53% 7.77% 11.45% -24.14% -0.17% 8.84% 5.12%

Strong Pricing Power over the past 10 years

TAC has maintained substantial gross margins, suggesting that they have been able to set prices without consideration of the cost of goods sold. This potentially leaves flexibility in inflationary environments to raise prices on consumers and maintain profitability.

$61.60 of every $100 worth of sales have been Gross Profit, on average over the past 10 years.
Figures in CAD. Fiscal year ends in December
2006200720082009201020112012201320142015
Gross Profit 1.61B 1.54B 1.62B 1.54B 1.62B 2.66B 1.45B 1.37B 1.53B 1.26B
divided by
Revenue 2.80B 2.77B 3.11B 2.77B 2.82B 2.66B 2.26B 2.29B 2.62B 2.27B
Gross Margin 57.58% 55.65% 51.97% 55.67% 57.36% 100.00% 64.24% 59.60% 58.37% 55.54%

High Capital Intensity over the past 10 years

TAC spends large amounts of capital buying new equipment or investing in new facilities to stay competitive. Over the long term, those costs may have to be fuelled by debt. Look at the growth of Shareholders' Equity to see if this strategy is having a positive or negative impact.

349.43% of Profits are being spent on Capital Expenditures, like Property, Plant, & Equipment, required to run the business.
Figures in CAD. Fiscal year ends in December
2006200720082009201020112012201320142015
Capital Expenditure 223.70M 599.10M 1.01B 904.00M 790.00M 483.00M 742.00M 593.00M 521.00M 502.00M
divided by
Net Income 44.90M 308.80M 235.55M 181.00M 219.00M 305.00M -546.00M -4.00M 232.00M 116.00M
Capital Expenditure Ratio 498.22% 194.01% 427.32% 499.45% 360.73% 158.36% -135.90% -14,825.00% 224.57% 432.76%

Very Strong Dividend History over the past 10 years

TAC has consistently distributed a dividend for at least the past 10 years. Such a long dividend history suggests TAC is very established in its market and that its dividend distribution is likely to continue for a significant period of time.
Figures in CAD. Fiscal year ends in December
2006200720082009201020112012201320142015
Dividend Paid 133.90M 204.80M 212.48M 284.00M 216.00M 206.00M 195.00M 154.00M 265.00M 170.00M
divided by
Shares Outstanding 200.80M 202.50M 199.00M 201.00M 219.00M 222.00M 235.00M 264.00M 273.00M 280.00M
Dividend Paid Per Share 0.66 1.00 1.06 1.40 0.98 0.92 0.82 0.58 0.96 0.60
Price at Year End 17.78 27.61 16.60 19.77 19.82 20.34 15.06 12.57 9.11 3.52
Dividend Yield 3.72% 3.63% 6.38% 7.09% 4.94% 4.53% 5.47% 4.60% 10.57% 17.11%

History of Stock Buybacks over the past 10 years

TAC has some history of delivering increased value for shareholders in the form of stock buybacks. These have helped improve financial metrics and increase each shareholders' relative ownership stake in the company, due to fewer shares outstanding and holding the same number of shares.
Figures in CAD. Fiscal year ends in December
2006200720082009201020112012201320142015
Shares Outstanding 200.80M 202.50M 199.00M 201.00M 219.00M 222.00M 235.00M 264.00M 273.00M 280.00M
Stock Bought Back - -0.84% 1.76% -1.00% -8.22% -1.35% -5.53% -10.98% -3.30% -2.50%
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