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TransAlta (TSX:TA) Corporation (NYSE:TAC) received a rating upgrade from Jefferies on Wednesday, citing the company’s strong position to benefit from rising power prices in Alberta, Canada.
Jefferies upgraded TransAlta from Hold to Buy and significantly raised its price target to C$20.00 from C$12.00, representing a substantial increase in the firm’s valuation outlook for the Canadian power producer.
The upgrade was driven by "more tangible evidence of durably higher AESO power prices following large load integration in the 2027/2028 time frame," according to Jefferies. The firm noted that 2027 forward Alberta Electric System Operator (AESO) pool prices have risen to the mid-C$60s range, compared to its previous assumption of C$52.45.
This price increase is particularly significant for TransAlta due to its "extensive AB merchant exposure," which Jefferies calculates will translate to nearly C$170 million in additional free cash flow for fiscal year 2027 and adds approximately C$6 per share to its price target.
Jefferies acknowledged it was "previously hesitant to underwrite rising AESO power prices," but gained confidence to raise its assumptions based on indications from AESO power price forwards and discussions with local stakeholders, despite noting that these forward markets can be "admittedly illiquid at times."
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