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On Friday, BMO Capital Markets sustained its positive outlook on TransAlta (NYSE:TAC) Corporation (TA:CN) (NYSE: TAC), reiterating an Outperform rating and a price target of Cdn$17.00. The firm's stance is supported by the company's promising position for a potential multi-year re-rating and a mix of increasingly contracted assets.
The endorsement comes after recent investor meetings with TransAlta's top executives, which reinforced the firm's conviction in the company's stock. BMO Capital highlights TransAlta's strategic position to benefit from an organic build-out of renewable energy sources, the possibility of connecting new data center loads in Alberta, and an improving perception of natural gas power assets.
TransAlta's current valuation stands at approximately 8 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), which is below the coverage average of around 10.5 times. BMO Capital anticipates that this gap may narrow as the company progresses with its strategic initiatives.
The financial institution emphasizes that TransAlta's shares are solidly placed within its "Top Three Best Idea" roster, indicating a strong conviction in the company's performance potential. This sentiment is based on the company's focus on increasing its contracted asset mix and the expected positive impact on investor sentiment.
In summary, BMO Capital maintains its Outperform rating on TransAlta, with a steady price target of Cdn$17.00, reflecting the firm's confidence in the company's future growth trajectory and asset strategy.
In other recent news, TransAlta Corporation reported robust Q2 2024 earnings, with an adjusted EBITDA of $312 million, free cash flow of $172 million, and net earnings of $56 million. The completion of its 200 MW wind facilities in Oklahoma is expected to contribute over $100 million to the annual adjusted EBITDA.
TransAlta also announced the conversion of its Series G and Series H preferred shares, though the number of shares converted and the terms of conversion were not specified. Additionally, the company declared its dividend rates for these preferred shares.
TransAlta is exploring repurposing options for its thermal sites in Alberta and Washington State while also progressing with its Heartland Generation transaction. In a move that benefits shareholders, the corporation returned $89 million through share repurchases and intends to continue this program.
InvestingPro Insights
As TransAlta Corporation (NYSE: TAC) continues to garner attention with its strategic positioning in the renewable energy sector, InvestingPro data and tips offer additional insights that may be valuable to investors. The company's market capitalization stands at $2,870 million, with an attractive P/E ratio of 6.6, suggesting that the stock may be undervalued relative to its earnings. This aligns with the InvestingPro tip that the company is trading at a low earnings multiple, which could indicate a potential investment opportunity for value seekers.
Despite a decline in revenue over the last twelve months, TransAlta has maintained a robust gross profit margin of 47.32%, showcasing its ability to retain profitability even as sales fluctuate. Additionally, the company has a strong track record of dividend payments, having kept them consistent for 37 consecutive years, which is a testament to its financial stability and commitment to shareholder returns. This is further supported by a dividend yield of 1.92% as of the last dividend's ex-date.
Investors should note that while analysts anticipate a sales decline in the current year, TransAlta has experienced a significant price uptick over the last six months, with a 47.41% total return, and is trading near its 52-week high. This suggests a positive market sentiment that could continue to drive the stock's performance. For those seeking more detailed analytics and insights, InvestingPro offers additional tips on TransAlta, which can be found at https://www.investing.com/pro/TAC.
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