TransAlta Corp. $21 – Toronto symbol TA

TRANSALTA CORP. $21 (Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 198 million; Market cap: $4.2 billion; Price-to-sales ratio: 1.3; SI Rating: Average) operates 50 electrical power plants in North America and Australia. Unlike TransCanada, TransAlta prefers to own unregulated plants. This increases its exposure to sometimes volatile electricity prices. But coal is TransAlta’s main fuel, and its ownership of three coal mines helps keep its costs down. In 2008, TransAlta’s earnings grew 9.8%, to $290 million from $264 million in 2007. Earnings per share rose 11.5%, to $1.46 from $1.31 on fewer shares outstanding. These figures exclude unusual items. Revenue rose 12.1%, to $3.1 billion from $2.8 billion. Cash flow rose 6.0% in 2008, to $828 million, or $4.16 a share, from $781 million, or $3.87 a share. That let TransAlta raise its quarterly dividend by 7.4%, to $0.29 a share from $0.27. The new annual rate of $1.16 yields 5.5%. TransAlta holds $50 million, or $0.25 a share, in cash. Unplanned outages at two of its Alberta power plants, and higher maintenance costs, will hurt TransAlta’s earnings in early 2009. Still, earnings for the year should improve to $1.61 a share, and the stock trades at 13.0 times that estimate. TransAlta is a buy.