As of May 25, 2025, TransAlta Renewables Inc's estimated intrinsic value ranges from $13.14 to $26.85 per share, depending on the valuation methodology applied.
| Valuation Method | Fair Value (USD) | Implied Upside/Downside |
|---|---|---|
| Discounted Cash Flow (10Y) | $13.14 | +5.3% |
| Discounted Cash Flow (5Y) | $13.96 | +11.9% |
| Dividend Discount Model (Multi-Stage) | $13.31 | +6.6% |
| Dividend Discount Model (Stable) | $26.85 | +115.2% |
| Earnings Power Value | $16.05 | +28.6% |
Is TransAlta Renewables Inc (RNW.TO) undervalued or overvalued?
With the current market price at $12.48, the stock appears to be significantly undervalued.
Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate TransAlta Renewables Inc's intrinsic value, including:
The cost of capital is a critical factor in valuation models, representing the required return for investors.
| WACC Component | Low | High |
|---|---|---|
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 0.43 | 0.49 |
| Cost of equity | 5.4% | 7.1% |
| Cost of debt | 4.3% | 6.3% |
| Tax rate | 10.5% | 15.1% |
| Debt/Equity ratio | 0.24 | 0.24 |
| After-tax WACC | 5.1% | 6.8% |
Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:
| DCF Model | Fair Value | Enterprise Value | % from Terminal Value |
|---|---|---|---|
| 5-Year Growth | $14 | $4,491M | 91.2% |
| 10-Year Growth | $13 | $4,271M | 82.0% |
| 5-Year EBITDA | $4 | $1,901M | 79.3% |
| 10-Year EBITDA | $5 | $2,108M | 63.4% |
The DDM values a company based on its expected future dividend payments. We used two approaches:
EPV assesses a company's value based on its current normalized earnings power, assuming no growth.
| EPV Component | Value |
|---|---|
| Normalized Earnings | $293M |
| Discount Rate (WACC) | 6.8% - 5.1% |
| Enterprise Value | $4,326M - $5,771M |
| Net Debt | $764M |
| Equity Value | $3,562M - $5,007M |
| Outstanding Shares | 267M |
| Fair Value | $13 - $19 |
| Selected Fair Value | $16.05 |
| Metric | Value |
|---|---|
| Market Capitalization | $3331M |
| Enterprise Value | $4095M |
| Trailing P/E | 42.70 |
| Forward P/E | 48.91 |
| Trailing EV/EBITDA | 10.75 |
| Current Dividend Yield | 753.55% |
| Dividend Growth Rate (5Y) | 2.21% |
| Debt-to-Equity Ratio | 0.24 |
To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:
| Valuation Method | Weight | Weighted Value |
|---|---|---|
| Discounted Cash Flow (10Y) | 30% | $3.94 |
| Discounted Cash Flow (5Y) | 25% | $3.49 |
| Dividend Discount Model (Multi-Stage) | 20% | $2.66 |
| Dividend Discount Model (Stable) | 15% | $4.03 |
| Earnings Power Value | 10% | $1.61 |
| Weighted Average | 100% | $15.73 |
Based on our comprehensive valuation analysis, TransAlta Renewables Inc's weighted average intrinsic value is $15.73, which is approximately 26.0% above the current market price of $12.48.
Key investment considerations:
Given these factors, we believe TransAlta Renewables Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.