TransAlta Corporation (NYSE: TAC) and TerraForm Power (NASDAQ:TERP) are both small-cap utilities companies, but which is the superior stock? We will compare the two businesses based on the strength of their valuation, profitabiliy, institutional ownership, analyst recommendations, risk, earnings and dividends.

Insider and Institutional Ownership

49.5% of TransAlta Corporation shares are held by institutional investors. Comparatively, 80.4% of TerraForm Power shares are held by institutional investors. 4.0% of TerraForm Power shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company will outperform the market over the long term.

Analyst Recommendations

This is a summary of recent ratings and recommmendations for TransAlta Corporation and TerraForm Power, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
TransAlta Corporation 0 4 0 0 2.00
TerraForm Power 0 4 1 0 2.20

TransAlta Corporation currently has a consensus price target of $7.00, indicating a potential upside of 8.53%. TerraForm Power has a consensus price target of $13.00, indicating a potential upside of 7.71%. Given TransAlta Corporation’s higher probable upside, research analysts clearly believe TransAlta Corporation is more favorable than TerraForm Power.

Profitability

This table compares TransAlta Corporation and TerraForm Power’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
TransAlta Corporation 2.25% 0.48% 0.16%
TerraForm Power N/A N/A N/A

Risk & Volatility

TransAlta Corporation has a beta of 0.7, suggesting that its share price is 30% less volatile than the S&P 500. Comparatively, TerraForm Power has a beta of 1.4, suggesting that its share price is 40% more volatile than the S&P 500.

Valuation and Earnings

This table compares TransAlta Corporation and TerraForm Power’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio EBITDA Earnings Per Share Price/Earnings Ratio
TransAlta Corporation $1.82 billion 1.02 $683.90 million $0.15 43.00
TerraForm Power $624.99 million 2.41 $407.36 million ($1.28) -9.43

TransAlta Corporation has higher revenue and earnings than TerraForm Power. TerraForm Power is trading at a lower price-to-earnings ratio than TransAlta Corporation, indicating that it is currently the more affordable of the two stocks.

Dividends

TransAlta Corporation pays an annual dividend of $0.12 per share and has a dividend yield of 1.9%. TerraForm Power does not pay a dividend. TransAlta Corporation pays out 80.0% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Summary

TransAlta Corporation beats TerraForm Power on 8 of the 15 factors compared between the two stocks.

TransAlta Corporation Company Profile

TransAlta Corporation (TransAlta) is a non-regulated electricity generation and energy marketing company with an aggregate net ownership interest of approximately 8,720 megawatts of generating capacity. The Company is engaged in the production and sale of electric energy. It focuses on generating and marketing electricity in Canada, the United States and Western Australia through its diversified portfolio of facilities fuelled by coal, natural gas, diesel, hydro, wind and solar. TransAlta is organized into eight business segments: Canadian Coal, U.S. Coal, Canadian Gas, Australian Gas, Wind and Solar, Hydro, Energy Marketing and Corporate. The Canadian Coal, U.S. Coal, Canadian Gas, Australian Gas, Wind and Solar, and Hydro segments are responsible for constructing, operating and maintaining its electrical generation. All the segments are supported by a Corporate segment, which includes the Corporation’s central financial, legal, administrative, and investing functions.

TerraForm Power Company Profile

TerraForm Power, Inc. is a United States-based holding company. The Company owns clean power generation assets. This includes solar and wind assets located in the United States, Canada and other markets. Its clean power generation assets serve utility, commercial and residential customers. As of December 31, 2016, the Company’s portfolio consisted of renewable energy facilities located in the United States, Canada, the United Kingdom and Chile with a combined nameplate capacity of 2,983.1 megawatts. It owns and operates over 500 hundred wind and solar clean energy power installations. Its projects include Bluebird, River Mountains Solar, Laho Solar, SunE Perpetual Lindsday, Sandringham, California Public institutions and Summit Solar Projects. The Company holds interest in TerraForm Power, LLC (Terra LLC), which is an owner and operator of renewable energy facilities that have long-term contractual arrangements to sell the electricity generated by these facilities to third parties.

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