Critical Contrast: TransAlta (NYSE:TAC) versus Pattern Energy Group (NYSE:PEGI)

TransAlta (NYSE:TAC) and Pattern Energy Group (NASDAQ:PEGI) are both utilities companies, but which is the better stock? We will contrast the two businesses based on the strength of their earnings, profitability, risk, analyst recommendations, valuation, institutional ownership and dividends.

Dividends

TransAlta pays an annual dividend of $0.12 per share and has a dividend yield of 1.8%. Pattern Energy Group pays an annual dividend of $1.69 per share and has a dividend yield of 6.1%. TransAlta pays out -22.6% of its earnings in the form of a dividend. Pattern Energy Group pays out 116.6% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future.

Valuation and Earnings

This table compares TransAlta and Pattern Energy Group’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
TransAlta $1.74 billion 1.09 -$152.76 million ($0.53) -12.72
Pattern Energy Group $483.00 million 5.60 $142.00 million $1.45 18.98

Pattern Energy Group has lower revenue, but higher earnings than TransAlta. TransAlta is trading at a lower price-to-earnings ratio than Pattern Energy Group, indicating that it is currently the more affordable of the two stocks.

Analyst Ratings

This is a summary of current ratings for TransAlta and Pattern Energy Group, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
TransAlta 0 3 3 0 2.50
Pattern Energy Group 1 8 0 0 1.89

TransAlta presently has a consensus price target of $10.17, indicating a potential upside of 50.84%. Pattern Energy Group has a consensus price target of $25.84, indicating a potential downside of 6.09%. Given TransAlta’s stronger consensus rating and higher possible upside, analysts clearly believe TransAlta is more favorable than Pattern Energy Group.

Volatility and Risk

TransAlta has a beta of 1.17, meaning that its share price is 17% more volatile than the S&P 500. Comparatively, Pattern Energy Group has a beta of 0.99, meaning that its share price is 1% less volatile than the S&P 500.

Institutional & Insider Ownership

48.4% of TransAlta shares are held by institutional investors. Comparatively, 80.6% of Pattern Energy Group shares are held by institutional investors. 1.7% of Pattern Energy Group shares are held by company insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Profitability

This table compares TransAlta and Pattern Energy Group’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
TransAlta -4.07% -4.91% -1.63%
Pattern Energy Group -19.92% -5.06% -1.89%

Summary

TransAlta beats Pattern Energy Group on 9 of the 16 factors compared between the two stocks.

TransAlta Company Profile

TransAlta Corporation operates as non-regulated electricity generation and energy marketing company in Canada, the United States, and Western Australia. It operates through eight segments: Canadian Coal, U.S. Coal, Canadian Gas, Australian Gas, Wind and Solar, Hydro, Energy Marketing, and Corporate. The company generates and markets electricity through various generation fuels, such as coal, natural gas, water, solar, and wind. It also engages in wholesale trading of electricity and other energy-related commodities and derivatives. The company operates facilities with approximately 9,331 megawatts of aggregate generating capacity. TransAlta Corporation was founded in 1909 and is headquartered in Calgary, Canada.

Pattern Energy Group Company Profile

Pattern Energy Group Inc. operates as an integrated renewable energy company. The company operates in two segments, Operating Business and Development Business. The Operating Business segment holds interest in 24 renewable energy projects with an operating capacity that totals approximately 4 gigawatts located in the United States, Canada, and Japan. The Development Business segment develops and sells renewable energy projects focusing on wind, solar, storage, and transmission primarily in the United States, Canada, Japan,and Mexico. Pattern Energy Group Inc. sells electricity and renewable energy credits primarily to local utilities and local liquid independent system organizations markets. The company was founded in 2012 and is headquartered in San Francisco, California.

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