Critical Analysis: NRG Energy (NRG) & TransAlta (TAC)

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

Profitability

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

Net Margins Return on Equity Return on Assets
NRG Energy -9.30% 29.44% 3.08%
TransAlta -8.42% -1.67% -0.58%



Analyst Ratings

This is a breakdown of recent ratings and price targets for NRG Energy and TransAlta, as reported by MarketBeat.com.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
NRG Energy 0 1 4 0 2.80
TransAlta 0 2 1 0 2.33

NRG Energy presently has a consensus price target of $37.40, indicating a potential upside of 4.24%. Given NRG Energy’s stronger consensus rating and higher probable upside, equities analysts plainly believe NRG Energy is more favorable than TransAlta.

Risk & Volatility

NRG Energy has a beta of 1.06, meaning that its share price is 6% more volatile than the S&P 500. Comparatively, TransAlta has a beta of 0.66, meaning that its share price is 34% less volatile than the S&P 500.

Insider & Institutional Ownership

97.4% of NRG Energy shares are owned by institutional investors. Comparatively, 56.0% of TransAlta shares are owned by institutional investors. 0.4% of NRG Energy shares are owned by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a stock will outperform the market over the long term.

Dividends

NRG Energy pays an annual dividend of $0.12 per share and has a dividend yield of 0.3%. TransAlta pays an annual dividend of $0.12 per share and has a dividend yield of 2.2%. NRG Energy pays out 11.0% of its earnings in the form of a dividend. TransAlta pays out -66.7% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. TransAlta is clearly the better dividend stock, given its higher yield and lower payout ratio.

Valuation and Earnings

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

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
NRG Energy $10.63 billion 1.02 -$2.15 billion $1.09 32.92
TransAlta $1.78 billion 0.87 -$123.42 million ($0.18) -30.17

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

Summary

NRG Energy beats TransAlta on 12 of the 16 factors compared between the two stocks.

NRG Energy Company Profile

NRG Energy, Inc., together with its subsidiaries, operates as an integrated power company in the United States. The company is involved in the generation of electricity using fossil fuel and nuclear sources. The company provides electricity to 2.9 million residential, commercial, and industrial consumers; system power, distributed generation, solar and wind products, backup generation, storage and distributed solar, demand response, energy efficiency, and on-site energy solutions; and carbon management and specialty services. In addition, it owns, operates, and develops solar and wind power projects; develops, constructs, and finances a range of solutions for utilities, schools, municipalities, and commercial markets; and trades in electric power, natural gas, and related commodity and financial products, including forwards, futures, options, and swaps. Further, the company transacts and trades in fuel and transportation services; directly sells energy, services, and products and services to retail customers under the NRG, Reliant, and other names; and provides steam, hot water, and chilled water, as well as electricity to commercial businesses, universities, hospitals, and governmental units. It operates natural gas, coal, Uranium, oil, solar, wind, fossil fuel, and nuclear plants with generation capacity of 30,000 megawatts. The company was founded in 1989 and is headquartered in Princeton, New Jersey.

TransAlta Company Profile

TransAlta Corporation operates as non-regulated electricity generation and energy marketing company in Canada, the United States, and Western Australia. The company operates through eight segments: Canadian Coal, U.S. Coal, Canadian Gas, Australian Gas, Wind and Solar, Hydro, Energy Marketing, and Corporate. It generates and markets electricity through various generation facilities. The company has an aggregate net ownership interest of approximately 8,546 megawatts of generating capacity. TransAlta Corporation was founded in 1909 and is headquartered in Calgary, Canada.

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