TransAlta Corp. $32 – Toronto symbol TA

TRANSALTA CORP. $32 ( Toronto symbol TA; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 201.4 million; Market cap: $6.4 billion; SI Rating: Average) owns 50 unregulated power plants in North America and Australia. In late 2006, the company closed the coal mine that supplied its plant in Centralia, Washington. It successfully replaced this fuel with coal from a mine in Wyoming. Due to increasing output at Centralia, plus higher power rates, TransAlta’s earnings in 2007 rose 13.1%, to $264.3 million from $233.8 million in 2006. These figures exclude non-recurring items. Per-share earnings rose 12.9%, to $1.31 from $1.16, while cash flow per share grew 14.2%, to $3.86 from $3.38. Revenue improved to $2.8 billion from $2.7 billion. TransAlta has raised its dividend for the first time since 1999. The new annual rate of $1.08 a share, up 8% from $1.00, yields 3.4%. TransAlta spent $74.9 million on share repurchases in 2007. The company is now considering selling its struggling Mexican plants, which would give it more cash for stock buybacks and dividends. Earnings in 2008 should grow to $1.45 a share, and the stock trades at 22.1 times that estimate. That’s higher than most utility stocks, but still reasonable in light of TransAlta’s strong growth potential. TransAlta is a buy.

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