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Atlantic Power can’t break through resistance

Hi Lou,

I own shares of Atlantic Power Corp. which has a modest dividend and seems to not do so well when the price of oil is higher or when the Toronto Stock Exchange is not doing as well. Do you have any comments? Everyone needs power.

Thanks in advance for your insights,

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Hey Luc,

Thanks for the assignment.

Atlantic Power Corporation holds a diversified portfolio of power generation and transmission assets operating in Canada and the United States. The geographic distribution of their power generation facilities are skewed to the States with 87 per cent located south of the border. They sell electricity under long-term power purchase agreements designed to pass through fuel cost fluctuations and help maintain their dividend which currently yields 7.89 per cent. This very generous dividend implies some greater risk associated with ATP when we conduct a comparative analysis with other players in the space.

If you go to the site there is an excellent table that allows for a concise analysis of the competition for any company that you are evaluating.

On a market cap basis alone the company is a small player in the space. In addition, when you compare the payout ratio and the term of their power purchase agreements you can see why they offer a higher than average dividend. On the matter of their power purchase agreements there are two facilities which will see re-contracting in 2013. The Lake and Aurburndale projects in Florida represent 21 per cent of EBITDA and management anticipates decreased cash flow and perhaps a sale of the assets as a result of the scheduled re-contracting.

A review of the charts will better inform your decisions with regards to this stock.

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The three-year chart illustrates a range bound pattern with support at $13.50 and resistance at $15.00. The RSI and MACD are both indicating that the shares have met resistance at the upper end of the range and are in the process of pulling back.

The six-month chart depicts the RSI easing back from an overbought situation and the MACD signalling a shift in momentum as the stock hit $15.00. I would suggest that you would be best served taking a profit and looking for an entry point at the lower end of the range. The company is scheduled to report third-quarter results on Nov, 5, 2012, which will serve as a flex point for the shares.

Make it a profitable day and happy capitalism!

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