A Strategic Shift: Jefferies Upgrades TransAlta to ‘Buy’ Amid Sector Tailwinds

TransAlta Corporation (TAC), a major player in North America’s power generation landscape, just received a critical rating upgrade from Jefferies, moving from ‘Hold’ to ‘Buy’. This signals a notable shift in institutional sentiment for the diversified utility, which has recently been at the crossroads of significant industry and company-specific catalysts. As the energy sector navigates the dynamic interplay of decarbonization, commodity cycles, and capital allocation, analyst upgrades like this serve as crucial signals for investors looking to capitalize on emerging opportunities and mitigate risk.

TransAlta’s business model spans hydro, wind, solar, and gas-fired power, primarily in Alberta and Western Canada, with a growing presence in the U.S. The company leverages a balanced approach between regulated and merchant power assets, allowing it to pivot with market trends while providing a steady base of cash flows.

The Jefferies upgrade is especially meaningful given ongoing market volatility and TransAlta’s recent strategic actions. With no published price target, the focus shifts to qualitative factors: operational momentum, capital returns, and sector tailwinds.

Key Takeaways:

• Jefferies upgrades TransAlta to ‘Buy’ from ‘Hold’, highlighting improving sector outlook and internal catalysts.

• Stock price has climbed 1.5% in the last session, continuing a sustained uptrend for 2025 after rebounding sharply from last summer’s lows.

• Recent news highlights: Renewed share buyback program and bullish LNG and Alberta power prices underscore capital return and earnings potential.

• Technical indicators (RSI near 87) suggest overbought conditions, but volume and sentiment remain robust, reflecting strong institutional interest.

• Jefferies’ reputation as a data-driven and influential energy sector analyst adds weight to the upgrade amid a critical inflection point for TransAlta.

Jefferies’ Upgrade: Context and Analyst Credibility

Jefferies, a global investment bank renowned for its rigorous energy sector coverage, has a long history of identifying inflection points in cyclical industries. Its research arm is widely followed by institutional investors and portfolio managers, lending significant weight to its ‘Buy’ thesis on TransAlta. The move from ‘Hold’ to ‘Buy’ suggests a conviction that recent company actions and macro tailwinds are underappreciated by the broader market.

Notably, Jefferies’ energy team specializes in dissecting regulatory shifts, commodity cycles, and capital allocation strategies—a trifecta that is highly relevant to TransAlta’s outlook in 2025. Their upgrade aligns with a renewed focus on capital returns (e.g., share buybacks), the prospect of higher Alberta electricity prices (driven by LNG exports), and a recalibrated risk profile as TransAlta’s balance sheet strengthens.

“Upgrading TransAlta from Hold to Buy due to a new share buyback program and potential long-term LNG-driven gas and power price increases in Alberta.” (Seeking Alpha)

Stock Performance and Technical Picture: Bullish Momentum or Overheated?

TransAlta’s stock has staged a remarkable comeback from its 52-week low of $6.78 (July 2024), recently closing at $10.56—a gain of over 55% from the trough. The stock’s highest point in the past year, $14.64, was reached in December, before a sector-wide pullback. Since then, the stock has reclaimed much of its lost ground, and the recent upgrade appears to be reinforcing institutional confidence.

• Recent trading session: Up 1.5%, with above-average volume, signaling renewed institutional interest.

• Technical indicators: The 20-day EMA and SMA are both trending upward, and the Relative Strength Index (RSI) is elevated at 87, reflecting strong buying momentum—though this also raises the risk of a near-term pullback or consolidation.

• Sentiment: With 132 up-days versus 116 down-days over the last year, the sentiment ratio is positive, and daily trade volumes remain robust.

Volume and Volatility Insights

Total volume over the past year has surpassed 30 million shares, with an average daily volume above 1.2 million—a sign of deep liquidity and institutional engagement. Volatility remains moderate, with daily price changes averaging 0.2%, but recent upward spikes indicate heightened investor interest post-upgrade.

Recent News: Catalysts Driving the Upgrade

Three key news events in the past month add critical context to the Jefferies upgrade:

1. Renewed Share Buyback Program:

   • "TransAlta Renews Normal Course Issuer Bid…implement a normal course issuer bid (NCIB) for a portion of its common shares." (GlobeNewsWire)

   • This move follows a successful buyback last year, signaling management’s confidence in intrinsic value and a commitment to shareholder returns. Historically, such programs provide downside support and can trigger positive sentiment shifts.

2. LNG and Alberta Power Price Tailwinds:

   • "LNG export terminals coming online will boost Alberta gas prices, raising electricity prices and benefiting TransAlta's merchant generation portfolio." (Seeking Alpha)

   • This is a secular tailwind for TransAlta, whose merchant generation assets are highly sensitive to commodity-linked price movements. The timing coincides with long-term demand growth and supply constraints.

3. Q1 2025 Earnings Call:

   • The company outlined a focus on disciplined capital allocation, operational efficiency, and sustainable growth. Analyst Q&A from major banks (Scotiabank, RBC, BMO, NBF, TD Cowen, CIBC) highlighted broad institutional interest and scrutiny, further validating the strategic pivot.

Financial Performance: Strengthening the Foundation

While specific quarterly figures were not provided, TransAlta’s recent actions—renewed buybacks, balance sheet repair, and portfolio optimization—point to a healthier underlying business. The shift towards cleaner generation and incremental growth in U.S. assets is providing both stability and optionality.

• Cash flow generation remains robust, enabling continued buybacks and possible dividend enhancements.

• Balance sheet leverage is moderating, reducing risk and increasing strategic flexibility.

Sector Backdrop: Why Utilities and Power Generators Are Back in Focus

The North American utilities sector has re-emerged as a hunting ground for value and growth investors alike. With global decarbonization policies, rising power demand (particularly from AI/data centers and electrification), and regional supply constraints, independent power producers like TransAlta are well-positioned for asymmetric upside.

Jefferies’ upgrade thus dovetails with a broader re-rating of the sector, as investors seek companies with the scale, capital discipline, and asset mix to capitalize on new cycles of infrastructure investment and commodity-driven pricing power.

Institutional Signals: Analyst Upgrades as a Market Catalyst

Analyst upgrades—especially from high-conviction shops like Jefferies—often precede institutional flows and can mark the start of sustained price momentum. While the absence of a published price target means the upside is not quantified, the qualitative catalysts (buybacks, commodity tailwinds, operational leverage) provide a compelling risk/reward profile at current levels.

The technical overbought condition (RSI > 80) warrants short-term caution, but the strategic case for medium- and long-term holders appears to be strengthening, especially as management aligns capital returns with macro tailwinds.

Looking Ahead: What Investors Should Watch

• Monitoring technical consolidation: After a rapid run-up and high RSI, a period of sideways action or mild pullback is plausible before a potential next leg higher.

• Execution on capital returns: Continued buybacks and possible dividend hikes will be scrutinized for follow-through.

• Commodity price trends: Watch Alberta power and LNG-linked gas prices, as these will directly impact TransAlta’s earnings sensitivity.

• Sector rotation and flows: With utilities back in focus, any broad-based rally or defensive rotation could further benefit TransAlta.

Conclusion: Jefferies’ Upgrade—A Vote of Confidence at a Critical Juncture

The Jefferies ‘Buy’ call is more than just a rating change; it reflects growing institutional confidence in TransAlta’s ability to harness sector tailwinds and deliver shareholder value. The upgrade—backed by strong news flow, improving financials, and sector momentum—merits close attention. The risk/reward dynamic is evolving, and while near-term caution is warranted given technicals, the medium-term case for outperformance is building strength.

TransAlta’s journey from last year’s lows to a new phase of opportunity is a testament to strategic execution and sector timing. As always, investors should pair analyst signals with their own due diligence, but the message from Jefferies is clear: TransAlta’s next act could be its most compelling yet.