TAC

We rate TRANSALTA CORP (TAC) as a Hold with a composite score of 61.4/100 at a current price of $13.04. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in value (82th percentile) and quality (80th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (42/100), Medium uncertainty, and Standard capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

TRANSALTA CORP holds a top-quartile position (#0 of 50) within the Transportation, Communications, Electric, Gas, And Sanitary Services sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 61.4/100 places it at rank #568 in our full 7,333-stock universe. At $4.3B in market capitalization, TRANSALTA CORP is a mid-cap player in the Transportation, Communications, Electric, Gas, And Sanitary Services space, which limits certain scale advantages but may allow for more agile strategic execution.

Revenue contraction of -31% combined with momentum at the 49th percentile paints a cautious picture of the near-term business outlook. The market appears to be pricing in continued challenges, and a catalyst for reversal is not clearly visible from current data.

The margin cascade tells an important story: gross margins of 60% (+5.0pp vs sector) narrow to operating margins of 28% (+10.4pp vs sector) and net margins of 8.0%, yielding a gross-to-net conversion rate of 13%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $13.04, TRANSALTA CORP appears undervalued relative to its fundamentals. Our value factor score of 82/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 31.5x (a 86% premium to the sector median of 16.9x), EV/EBITDA of 1.7x (discounted to peers), P/B of 1.4x, P/S of 0.5x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Medium uncertainty rating to TRANSALTA CORP. The stock presents a balanced risk profile: risk factors are within normal ranges. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

We identify no major risk factors at this time. The company's stability factor sits at the 40th percentile with quality at the 80th percentile, both of which support our low-risk assessment. The absence of material leverage, profitability, or volatility concerns reduces the likelihood of a permanent capital loss scenario.

Key risk mitigants include: healthy gross margins of 60% provide a buffer against cost pressures. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate TRANSALTA CORP's capital allocation as Standard. Management has shown adequate — though not exceptional — stewardship of shareholder capital. Returns on equity stand at 23.0%, and the balance sheet is managed within acceptable parameters (D/E: 91%). Exemplary allocators typically sustain ROE above 20% and D/E below 50%; TRANSALTA CORP falls short on at least one dimension.

There is room for improvement in optimizing the capital structure or enhancing shareholder returns. The 1.24% dividend yield provides some income return, but the overall capital allocation framework would benefit from either higher reinvestment returns, improved balance sheet efficiency, or increased shareholder distributions. We will monitor for signs of strategic improvement that could warrant an upgrade.

In summary, TRANSALTA CORP receives a Hold rating with a composite score of 61.4/100 (rank #568 of 7,333). Our quantitative framework assigns a Narrow Moat (42/100, trend: stable), Medium uncertainty, and Standard capital allocation. The average factor score across quality, value, momentum, stability, and investment is 61/100.

Our analysis supports a neutral stance on TRANSALTA CORP. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.