Tuesday, March 19, 2013

TransAlta Corp 2

I own this stock of TransAlta Corp (TSX-TA, NYSE-TAC). I first bought this stock in 1987 and I bought more in 2009. I sold small amounts of this stock in 2000 and in 2012. It has not been a top performer, but it has done ok over the years. My Total Return on this stock is 7.02% per year with 7.81% from dividends and with a capital loss of 0.79%. (What I would like from utility investments is 4% in dividends and 4% in capital gains each year.)

The report on insider trading is interesting. There is a small amount of insider buying ($0.5M) and no insider selling. Not only does this company have options, but it has option like vehicles called Performance Share Ownership Plan (PSOP) and Restricted Share Units (RSU). Both insider ownership and options are rather modest.

The CEO has shares worth $1.3M and has options are worth $6.4M. The CFO has shares worth $0.6M and has options worth $1.8M. Officers seem to have modest holdings and modest options. A director has some share and has options worth $0.5M. This is just to give you an idea on insider share ownership and option values.

I get 5 year low, median and high median Price/Earnings Ratios of 17.80, 21.80 and 23.98. The current P/E Ratio is 18.32 based on 2013 earnings estimates of $0.82 and a stock price of $15.02. This implies a relatively good stock price. However, I personally find these P/E Ratios a bit high, especially for low growth utility stock.

I get a Graham Price of $12.71. The 10 year low, median and high median Price/Graham Price Ratios are 1.11, 1.31 and 1.55. The current P/GP Ratio is 1.18. This again shows a relatively good stock price.

I get a 10 year Price/Book Value per Share of 1.74. The current P/B Ratio is very close at 1.72 and this shows a relatively average stock price.

The place that shows a really good stock price is looking at the Dividend Yield. The 5 year median Dividend Yield is 5.35% and the current Dividend Yield is 7.86%. The current yield is some 47% higher than the 5 year median Dividend Yield. This is signaling that the stock is cheap. This test also might be the best test for this stock.

The analysts' recommendations have a rather curious formation. I find Strong Buy, Hold and Underperform recommendations. (There are no Buy recommendations.) The consensus recommendation is a Hold. The 12 month stock consensus is $15.70. This implies a total return of 12.38%, with 7.86% from dividends and 4.53% from capital gains.

On the positive side, no one expects this company to go belly up, nor does anyone expect them to cut their dividends. The dividends do give support to the stock price. It has been suggested that the company hit bottom in the second quarter of 2012 and it will improve from there. However, analysts are being very cautiously optimistic with most saying giving a recommendation of Hold or Underperform.

A number of analysts are worried about the effects of issues with Centralia power Plant in Washington State. It seems like there is some resolution to this. See article in Calgary Herald. It would seem that analysts probably like other utility companies better because this company has mostly older coal fired plants.

TransAlta is trying to diversity away from coal fired electrical plants and is building Wind Mill farms. See article in Wind Powering Engineering site.

The Ontario Government has been determined to build wind mills farms and TransAlta has one on Wolfe Island in Ontario. There is a positive article on wind farms by David Suzuki and it is the first positive article I have seen on wind farms. You can read the article here. Of course, the report could be very much coloured by the fact that Suzuki is very much in favour of wind mills politically. There is an article by CBC that is more negative.

However, you have to wonder if wind mills producing electricity is the future. In Ontario we have problems with this electricity. The wind blows when it blows and not when we need electricity. Because of this we have sold wind mill electricity at a negative price. (Yes, we paid people to take the electricity off our hands.) This is not sustainable. However, the Ontario government has recently been talking about using batteries to store excess wind mill electricity until it is needed. I cannot find the articles I read in the past, but this Toronto Star article talks a bit about the problems Ontario has with electricity produced by wind mills.

TransAlta is a power generation and wholesale marketing company. TransAlta maintains a low-to-moderate risk profile by operating a highly contracted portfolio of assets in Canada, the United States and Australia. TransAlta's focus is to efficiently operate our biomass, geothermal, wind, hydro, natural gas and coal facilities in order to provide our customers with a reliable, low-cost source of power. Its web site is here TransAlta. See my spreadsheet at ta.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 or StockTwits.

1 comment:

My Own Advisor said...

Hey Susan,

I continue to keep a small position in this one for yield. Worse case, I see a dividend cut and maybe a buyout.

Cheers,
Mark