RE:RE:Go back to Jan 2012
I agree. TA troubles were evident even before Farrell returned as CEO. In 2008, there was evidence that growth was extremely challenged given corporate strategy. One could also point to the outrageous cost to build KH3 during the boom years (probably the most expensive coal-fired generating plant on the planet) and the distraction from the activist hedge funds. Increasing the dividend and the counter- cyclical aquisition of CHD were ill-informed especially as a quick rebound in power and natural gas markets didn't materialize after the financial crisis.
Now TA is left with the strategy of high risk trading of power markets to mostly fund the reduced dividend - clearly an unsustainable situation in my opinion especially given the possibility that TA could be found guilty of anti-competive behaviour and market manipulation again (the first was for blocking BC imports). It's likely that TA was required to reduce the dividend just to prevent a rating downgrade. A further drastic dividend cut will be required if the MSA allegations are true and TA is required to pay estimated damages that could exceed $100 million. Then will TA be valued for what it is - a merchant power company whose revenue generating activity has been mostly limited to higher risk trading.
A potential resulting downgrade to junk by the bond agencies, could push TA share price below book value. In my opinion, this is the key to estimating the long run value of TA stock. In other words, what is the discounted and fully risked value of a coal generating fleet when natural gas and wind will be the dominant power generating technologies post regulated PPA?
Of course, this is just my educated (or not) opinion and reason enough for me to stay well away. I certainly prefer CPX in this sector even if it appears to be fully valued at current prices. Good investing to you.