TRANSALTA CORPORATION (TAC): what the price assumes

In the published model solve dated 2026-Q2, anchored at $12.66, TRANSALTA CORPORATION (TAC) is priced for today's economics sustained for ~7.5 years. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-11.

Generated: 2026-08-10 · Exported: 2026-08-12 · Source: https://boothcheck.com/report/TAC

Headline

What The Price Assumes (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

Solve inputs: computed at a 7.5% cost of capital; growth searched up to the 25% self-funding ceiling; each 1pp moves the implied horizon ~2.4 years.

Reconcile: at the x-ray's 9.3% required return this reads ~11.4 years; the models below use their own rates.

How unusual the bet is: elevated

Valuation X-Ray

Every valuation family lands below the price. The price therefore sits beyond what those standard frames encode.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

Families that call it expensive: Asset

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.1%); the inversion above states its own rate.

Per-Model Detail (n=3)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

Bullet Takeaways

• TransAlta is a merchant power generator, not a regulated utility, which makes the stock a leveraged claim on Alberta power prices and on converting its Keephills data-center memorandum with CPP Investments and Brookfield (initial 230 MW, potential expansion toward 1 GW) into contracted load.

• The biggest risk is that the trailing year already shows the downside: negative GAAP earnings, first-quarter revenue down to $565 million from $758 million on soft Alberta prices, and interest coverage of roughly 1.9 times, all while the share count keeps growing.

• Watch for definitive agreements on the Keephills data-center development, the closing of the 318 MW Denver-area peaker acquisition funded by the June 2026 equity raise, and whether the next quarterly print holds the reaffirmed $950 million to $1,050 million adjusted EBITDA guidance.

Bull Case

Utilities are usually the easy ones to value: a regulator sets the allowed return, the rate base grows a few percent a year, and the stock behaves like a bond with a growth coupon. TransAlta breaks that pattern on purpose. It is a merchant power generator, selling electricity into open markets, above all Alberta's, at whatever the market clears. That makes the earnings stream lumpier than a regulated peer's, and it is exactly why the stock is interesting right now: a merchant generator is a leveraged claim on power demand, and power demand in its home market is about to meet data centers.

The demand story stopped being hypothetical this year. TransAlta announced a memorandum of understanding with CPP Investments and Brookfield to develop a data center at its Keephills site in Alberta, anchored by an initial long-term power purchase agreement of roughly 230 megawatts with potential expansion toward a gigawatt of load. A long-term contracted load of that size does the one thing a merchant generator most wants: it converts spot-price exposure into contracted revenue at the customer's expense, not the regulator's. Management is simultaneously diversifying away from pure Alberta exposure, closing a $350 million equity offering in June 2026 to fund the purchase of two gas-fired peaking plants totaling 318 megawatts near Denver.

The cash side supports the patience the thesis requires. The company generated $291.9 million of trailing free cash flow, reaffirmed its 2026 guidance of $950 million to $1,050 million of adjusted EBITDA and $350 million to $450 million of free cash flow, and raised the dividend 8%, its seventh consecutive annual increase. Concede the weak first quarter: revenue and earnings fell on soft Alberta prices and an outage at Centralia Unit 2. But a company that raises its dividend for a seventh straight year while reaffirming guidance in a down quarter is signaling that it reads the weakness as cyclical, and the data-center pipeline gives the cycle something new to land on.

Bear Case

TransAlta's historical edge was owning low-cost generation in a market, Alberta, that paid well for it, and that edge is eroding from both directions at once. On the price side, Alberta power prices have come down hard: first-quarter 2026 revenue fell to $565 million from $758 million a year earlier, and adjusted EBITDA dropped to $204 million from $270 million, with management citing lower Alberta prices and no generation from Centralia Unit 2. On the supply side, the same data-center demand that anchors the bull case is drawing new generation and new competitors into the province. A merchant generator has no regulated moat to fall back on; when the market price of its product falls, the earnings simply fall with it.

The trailing financials show what that looks like. The company lost money over the trailing twelve months on a GAAP basis, return on equity is negative, and returns on invested capital sit below 2%, which is thin compensation for owning a fleet of power plants. Interest coverage runs about 1.9 times operating income, so a levered balance sheet sits under a volatile revenue line. Net earnings attributable to common shareholders fell to $13 million in the first quarter from $46 million a year earlier. The equity story leans heavily on adjusted EBITDA and free cash flow measures precisely because the bottom line has little to show.

Capital allocation compounds the concern. The share count has grown about 2.3% a year over the past four years, and the June 2026 equity offering added another $350 million of new shares to fund the Denver peaker acquisition, so existing holders are being diluted to buy assets while the home market softens. The dividend increase reads well in a headline, but paying a rising dividend from a loss-making income statement while issuing equity is a circular way to return capital. The bet embedded in today's price needs the company to grow operating income near the fastest pace it can fund internally for roughly eight years, and only about a quarter of comparable fast-growers have sustained anything like that. If Alberta prices stay soft and the Keephills memorandum stays a memorandum, the price is paying for growth the current fleet is not delivering.

Valuation

At $14.22 (July 10, 2026), the methods that can see TransAlta's future disagree sharply with the ones that can only see its present. Peer-multiple approaches land near the price: a sales-based read sits roughly at it, while an EV/EBITDA comparison against the utility sector's 13x median puts the price about a third above what trailing EBITDA supports. Asset-grounded approaches sit far below, with the price running around four times what book-value-and-profitability reads defend, which is what happens when book value per share is $3.63, trailing GAAP earnings are negative, and returns on invested capital run under 2%. The pattern says the market is not paying for demonstrated returns; it is paying for what the fleet could earn in a tighter power market with contracted data-center load attached.

Worked backward, today's price implies company-wide operating growth held near the fastest pace the business can fund from its own cash flow for roughly eight years, and only about a quarter of comparable fast-growers have sustained that pace over a similar horizon. The comparison data behind that read is limited, so treat it as directional, but the direction is consistent: this is a demanding price for a company whose trailing year produced a loss. What has to be true is fairly specific. Alberta power prices need to recover from the levels that cut first-quarter revenue to $565 million from $758 million, and the Keephills data-center development needs to convert from memorandum to megawatts.

The balance sheet can carry the wait, but not indefinitely. Net debt stands at about $2.4 billion against $150 million of liquid assets, interest coverage is roughly 1.9 times operating income, and the share count has grown about 2.3% a year over four years, with a further $350 million equity offering closed in June 2026. Free cash flow remains positive at $291.9 million trailing, and management's reaffirmed 2026 guidance of $350 million to $450 million of free cash flow frames the near-term cash engine. The decisive number is the Alberta power price: everything else in the price, the growth assumption, the multiple gap over the asset reads, the dividend trajectory, keys off whether the home market firms.

Catalysts

The Keephills data-center development is the catalyst that can reprice the story. TransAlta's memorandum of understanding with CPP Investments and Brookfield covers an initial long-term power purchase agreement of roughly 230 megawatts with potential expansion up to a gigawatt of load. Each step from memorandum toward definitive agreements and construction converts merchant exposure into contracted revenue, and the market will treat progress announcements as information events. The counterweight is the Alberta spot market itself: first-quarter results fell on lower provincial power prices, so any evidence of firming or further softening in Alberta pricing moves the near-term earnings picture directly.

The capital program has two dated threads. The June 2026 equity offering of $350 million funds the acquisition of two natural gas-fired peaking facilities totaling 318 megawatts near Denver, and the closing of that purchase extends the fleet outside Alberta for the first time in this cycle. Management also reaffirmed 2026 guidance of $950 million to $1,050 million in adjusted EBITDA and $350 million to $450 million in free cash flow, and raised the dividend 8% for a seventh consecutive annual increase, so the next quarterly report tests whether a weak first quarter was an outage-and-price blip or the start of a guidance problem. Centralia Unit 2's return to generation is the operational item to check inside that print.

Peer Cohorts (Per Segment, With Filing Citations)

Core business (reported)

• TDS (TELEPHONE AND DATA SYSTEMS, INC.)
• FY2025 10-K: …condition or results of operations. 11 Table of Contents 12) Changes in various business factors, including changes in demand, consumer preferences and perceptions, price competition, cost increases and other factors, could have an adverse effect on TDS' business, financial condition or results of operations. Changes…
• FY2025 10-K: …financial condition or results of operations. TDS' wireline business is devoting a substantial amount of capital for fiber builds in its markets using a combination of internal and third-party construction crews. TDS is also often reliant on third parties for items such as franchises, utility locates and easements,…
• ASH (ASHLAND INC.)
• FY2025 10-K: …In addition, competitors' pricing decisions could compel Ashland to decrease its prices, which could negatively affect its margins and profitability. Additional competition in markets served by Ashland could adversely affect margins and profitability and could lead to a reduction in market share. Also, Ashland…
• FY2025 10-K: …post-closing adjustments associated with environmental remediation reserves associated with these businesses. See Note C of the Notes to Consolidated Financial Statements for more information related to discontinued operations. Other comprehensive income (loss) A comparative analysis of the components of other…
• AWI (ARMSTRONG WORLD INDUSTRIES, INC.)
• FY2025 10-K: …The acquired operations, assets and liabilities of Insolcorp are included in our Mineral Fiber segment. In July 2023, we acquired all of the issued and outstanding stock of BOK Modern, LLC ("BOK"), based in San Rafael, California. BOK is a designer of exterior metal architectural solutions. The operations, assets and…
• FY2025 10-K: …profitability. Failure to compete effectively by meeting consumer preferences, developing and marketing innovative solutions, maintaining strong customer service and distribution relationships, and expanding our solutions capabilities and reach could have a material adverse effect on our financial condition,…
• GEL (GENESIS ENERGY LP)
• FY2025 10-K: …that their production can access the markets. Usually, our offshore crude oil pipeline customers enter into buy-sell or other transportation arrangements, pursuant to which the pipeline acquires possession (and, sometimes, title) from its customer of the relevant production at a specified location (often a producer's…
• FY2025 10-K: …if at all. In addition, we experience competition for the assets we purchase or contemplate purchasing. Increased competition for a limited pool of assets could result in our not being the successful bidder more often or our acquiring assets at a higher relative price than that which we have paid historically. Either…
• WLY (JOHN WILEY & SONS, INC.)
• FY2025 10-K: …is Adjusted Operating Income. The CODM uses Adjusted Operating Income during the annual budgeting process and evaluates budget and forecast-to-actual variances on a monthly basis to make decisions about the allocation of resources to our segments. Our significant expense categories that are included within Adjusted…
• FY2025 10-K: I on a constant currency basis increased 29% as compared with the prior year. The increase in Adjusted OI was primarily due to an increase in Adjusted Revenue and, to a lesser extent, lower operating and administrative expenses. Adjusted EBITDA on a constant currency basis increased 8% as compared with the prior year…
• CVSA (Covista Inc.)
• FY2025 10-K: ​ ​ ​ ​ Adjusted operating income (GAAP) ​ $ 153,367 ​ $ 137,800 ​ $ 15,567 ​ 11.3 % Depreciation ​ ​ 21,687 ​ ​ 18,752 ​ ​ 2,935 ​ ​ ​ Amortization of cloud computing implementation assets ​ ​ 3,033 ​ ​ 1,332 ​ ​ 1,701 ​ ​ ​ Stock-based compensation ​ ​ 13,309 ​ ​ 8,303 ​ ​ 5,006 ​ ​ ​ Adjusted EBITDA (non-GAAP) ​ $…
• FY2025 10-K: …operating income increased 57.4%, or $124.5 million, to $341.5 million in fiscal year 2025 compared to the prior year. The operating income increase in fiscal year 2025 was primarily driven by an increase in revenue and decreases in business integration expense, amortization of acquired intangible assets, and…
• MD (Pediatrix Medical Group, Inc.)
• FY2025 10-K: …to (3.4)% for the same period in 2024. The increase in our operating margin was primarily due to the impact from practice disposition activity and favorable same-unit results, primarily related to same-unit revenue growth. Excluding the impairment activity, transformational and restructuring related expenses and loss…
• FY2025 10-K: …of the applicable practice group. See "Government Regulation-Fee Splitting; Corporate Practice of Medicine." COMPETITION The physician services industry is highly fragmented. Competition in our business is generally based upon a number of factors, including reputation, experience and level of care and our affiliated…
• CHH (CHOICE HOTELS INTERNATIONAL INC /DE)
• FY2025 10-K: …owned hotels against the franchise and management fee expense that is recognized by our owned hotels in Corporate & Other operating income (loss). Our President and Chief Executive Officer, who is our chief operating decision maker ("CODM"), utilizes budgeted and forecasted financial information as well as industry…
• FY2025 10-K: …an acquisition of a joint venture and federal income tax credits, which were partially offset by the impact of state income taxes and tax expense related to compensation. The following table presents a reconciliation of the statutory U.S. federal income tax rate to the effective income tax rate for continuing…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.