Stock Analysis

Is Low ROE Despite High Leverage Altering the Investment Case for AltaGas (TSX:ALA)?

TSX:ALA
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  • AltaGas Ltd. recently reported a return on equity of 6.2%, closely matching the gas utilities industry norm, but this result comes despite a significant reliance on debt, with a debt to equity ratio of 1.03.
  • Although the company’s debt usage is high, it has not translated into elevated returns, raising questions about the effectiveness of its capital structure and use of leverage.
  • We’ll explore how persistent concerns around AltaGas’s low return on equity despite high leverage may influence its investment outlook.

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AltaGas Investment Narrative Recap

To be a shareholder in AltaGas, you have to believe that its significant investment in energy infrastructure projects and its growing utilities business will drive long-term earnings and dividend growth. The recent report of a 6.2% return on equity, despite high leverage, does not appear to materially shift the short-term catalyst, which remains the on-schedule completion and ramp-up of major projects like REEF. For now, the biggest risk continues to be execution on these project commitments and associated capital demands.

Among the recent announcements, construction progress at the Ridley Island Energy Export Facility (REEF), with over 60% of project costs now incurred or committed, is particularly relevant. Timely completion of REEF is crucial to unlocking new export capacity, which underpins AltaGas's anticipated earnings and dividend growth, even as reliability of returns draws close scrutiny amid high leverage.

In contrast, while project progress is positive, investors should be mindful that AltaGas’s reliance on debt means that any...

Read the full narrative on AltaGas (it's free!)

AltaGas is projected to reach CA$14.7 billion in revenue and CA$820.5 million in earnings by 2028. This outlook assumes a 5.6% annual revenue growth rate and implies a CA$242.5 million increase in earnings from the current CA$578.0 million.

Uncover how AltaGas' forecasts yield a CA$40.75 fair value, in line with its current price.

Exploring Other Perspectives

TSX:ALA Community Fair Values as at Jul 2025
TSX:ALA Community Fair Values as at Jul 2025

Four Simply Wall St Community fair value estimates for AltaGas range from CA$28.17 to CA$150.19 per share, reflecting dramatically different outlooks. While some see upside from REEF’s progress, others are cautious about capital structure risks, be sure to review all viewpoints before making up your mind.

Explore 4 other fair value estimates on AltaGas - why the stock might be worth 31% less than the current price!

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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