TransAlta (TAC) Sees Price Target Boost from National Bank Amidst Mixed Financial Health and Business Performance

TransAlta's price target has been boosted by National Bank to C$17, up from C$16, as the analyst maintains an Outperform rating. The company's financial health presents a mixed picture, with declining revenue, negative profitability, and high debt-to-equity ratio. However, the gross margin is relatively strong, and the price-to-sales ratio is close to its 10-year high. The analyst's positive outlook reflects confidence in the company's performance.

TransAlta Corporation (NYSE: TAC) reported its Q2 2025 earnings on August 1, 2025, with the company beating expectations. The earnings call highlighted the company's mixed financial performance, with a focus on strong gross margins and strategic initiatives.

Key Financial Highlights

- Earnings per Share (EPS): TransAlta reported EPS of $0.13, exceeding market expectations of $0.07.
- Adjusted EBITDA: The company generated $349 million in adjusted EBITDA, a $33 million increase year-over-year.
- Free Cash Flow: Free cash flow was $177 million, in line with the same period last year.
- Segment Performance: The Hydro segment saw a significant increase in adjusted EBITDA due to higher intercompany sales of emissions credits and ancillary prices. The Wind and Solar segment maintained its performance, while the Gas segment saw a decrease due to lower realized power prices and higher carbon and natural gas pricing.

Operational Performance

- Hedging Strategies: TransAlta's Alberta portfolio benefited from hedging strategies, realizing premiums of 75% for gas, 105% for hydro, and 55% for gas fleet.
- Data Center Strategy: The company is actively engaged in the Alberta data center strategy, with the AESO allocating 1,200 megawatts of system capacity to data center proponents, including TransAlta.
- Centralia Site: TransAlta is progressing with commercial negotiations at the Centralia site, targeting a definitive agreement before year-end.

Market Outlook

National Bank recently boosted TransAlta's price target to C$17, up from C$16, maintaining an Outperform rating. The analyst cited strong gross margins and a relatively close price-to-sales ratio as positive indicators, despite declining revenue and negative profitability. The company's high debt-to-equity ratio remains a concern, but the analyst's positive outlook reflects confidence in the company's performance.

Conclusion

TransAlta's Q2 2025 earnings reflect a mixed financial picture, with strong gross margins offset by declining revenue and negative profitability. The company's strategic initiatives, particularly in the data center and renewable energy sectors, offer potential growth opportunities. Investors should closely monitor the company's progress in these areas and its ability to manage its debt-to-equity ratio.

References

[1] https://www.insidermonkey.com/blog/transalta-corporation-nysetac-q2-2025-earnings-call-transcript-1582781/