Is It Time to Buy Atlantic Stock? Part Twohttp://www.fool.com/investing/general/2013/05/08/is-it-time-to-buy-atlantic-stock-part-two.aspx Justin Loiseau
May 8, 2013
Atlantic Power (NYSE: AT) shares are down 60% this year, and investors are wondering whether there's any upside left to this dividend downer. With Q1 earnings on Thursday, investors need to know the answer to a very important question: Is Atlantic Power stock undervalued? In part one of this segment, I examined the company's fundamentals. In part two, let's take a look at Atlantic's valuation.
In a scenario such as Atlantic's, when shares have plummeted so far as to create potential fire-sale opportunities, I find it best to look at price-to-book ratio. This metric is essentially comparing price to equity, except that it also takes out the fluff of intangibles. No future earnings expectations, no crack management team, no brand power...no nothing. Let's see how our utilities add up:
Birds or not, there's no beating around the bush: Atlantic is cheap. Trading at just 76% of its price-to-book ratio, investors don't have much faith in the utility's future. On the opposite end, TECO Energy's (NYSE: TE) books are a long way from the bargain bin. The utility's coal-centric energy portfolio has been on the rise this year, and expectations of more expensive natural gas have pushed prices to premiums in the last few months.
Cold hard cash
Unfortunately for our purposes, erratic cash flow makes any direct conclusions relatively difficult. Although it's not linked to prices, let's instead take a look at changes in free cash flow over the last three years.
TECO and Exelon (NYSE: EXC) have managed to maintain positive cash flows, but Exelon's relative scale makes its most recent gains less significant. On the lower end, FirstEnergy (NYSE: FE) fumbled away $30 million in cash, while Atlantic's operations have remained steady.
To infinity and beyond!