Analyst Thinks It's Time To Take Profits In TransAlta

Oct.19.07 | About: TransAlta Corporation (TAC)

Alberta’s economy may be showing signs of slowing, which is making analysts at Canaccord Adams doubt their forecast for a peak in electricity costs. Prices are up significantly compared to two years ago, but even at current levels, they will have a negative impact on the firm’s earnings estimate and valuation for TransAlta Corp. (NYSE:TAC).

As a result, Bob Hastings downgraded his rating to “sell” from “hold” and his price target was cut by C$5 to C$27. His 2007 earnings forecast for TransAlta was cut by a dime to C$1.20, and by 30¢ in 2008 to C$1.60.

But where are these signs of economic weakness coming from?

Mr. Hastings points out that power demand growth has been only 0.5% this year, while the last few months have seen a dip of nearly 2% compared to last year. He also notes that power demand in Alberta had a 97% correlation rate with the province’s real GDP growth between 1998 and 2006.

While the analyst thinks TransAlta is still on the right track and infrastructure assets will continue to be attractive in the long-term, he nonetheless thinks a potential delay in the Alberta power market peak may mean it's time to take profits in TransAlta.