Best Stock to Buy Right Now: Brookfield Renewable vs TransAlta Corporation?

Brookfield Renewable Partners (TSX:BEP.UN) is a massive player in renewables.

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A lake in the shape of a solar, wind and energy storage system in the middle of a lush forest as a metaphor for the concept of clean and organic renewable energy.

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Brookfield Renewable Partners (TSX:BEP.UN) and TransAlta Corporation (TSX:TA) are two companies with a lot in common. Both are leading the charge in renewable power. Both generate power from the same kinds of sources (solar, wind, hydro, etc.). And finally, both pay dividends.

However, there is one major difference between the two companies:

Brookfield is a major global player, having recently signed a deal to supply none other than Microsoft (NASDAQ:MSFT) with 10.5 gigawatts of clean power, while TransAlta renewables is a more domestic operation. So, Brookfield Renewable has more opportunities in front of it, while also facing a wider array of global competitors. TransAlta has fewer growth opportunities but faces fewer competitors. In this article, I will compare the two green energy companies side by side so you can decide which is the better bet for your portfolio.

Brookfield: More growth, a global reach

Compared to TransAlta renewables, Brookfield Renewable Partners has experienced more growth in recent years. Over the last five years, BEP.UN compounded its revenue, earnings before interest depreciation, taxes, and amortization (EBITDA), and assets at the following rates:

  • Revenue: 8.3%.
  • EBITDA: 4%.
  • Assets: 17.6%.

The same rates for TransAlta Corp were:

  • Revenue: 3.4%.
  • EBITDA: 7%.
  • Assets: -1.3%.

So, Brookfield appears to be doing more growth than TransAlta, at least on the top line. TransAlta actually had the better growth rate in reported earnings over the last five years, though. So the comparison isn’t completely cut and dry.

The reason why Brookfield Renewable Partners is growing its revenue more than TransAlta is because it has a bigger global market to feed. The company is doing deals with some of the biggest players in tech, energy, and other sectors.

There is no better case study with which to illustrate this reality than the company’s recent Microsoft deal. In the Spring of last year, Brookfield Renewable announced that it had inked a deal to supply the software giant with 10.5 gigawatts of clean power over several years. The deal could generate up to $1 billion per year for Brookfield based on the prices similar companies charge for power.

These kinds of exciting global deals are a Brookfield mainstay, but not so common for smaller companies like TransAlta Renewables.

TransAlta Corp: Smaller but more profitable

Although TransAlta lacks Brookfield’s growth and global reach, it does have at least one edge over that company:

Profitability.

At least going by reported earnings, TransAlta Corp is more profitable than Brookfield Renewable. While Brookfield Renewable has the higher gross margin, TransAlta has higher margins in most other categories, as the table below illustrates.

BEP.UNTA
EBIT margin17.7%22%
EBITDA margin54%41%
Net margin-6%7.5%
Free cash flow margin-15%8.3%
BEP.UN vs. TA: profitability

As you can see, TA generally has higher margins than BEP.UN. With that being said, I take the latter company’s more impressive set of global opportunities to be the deciding factor in the decision between the two stocks. It looks like Brookfield has more paths to growth. So, if I had to invest in one of these stocks, I’d go with Brookfield.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool recommends Brookfield Renewable Partners and Microsoft. The Motley Fool has a disclosure policy.

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