Northland Power Stock Has Seriously Fizzled: Is Now a Smart Time to Buy?

Northland Power (TSX:NPI) develops, owns, and operates a diversified portfolio of energy infrastructure assets with a total operating capacity of 3.2 gigawatts. The company also supplies power through a regulated utility, and approximately 95% of its revenue comes from long-term contracts, helping insulate its financial performance from market volatility.

Despite this stability, the stock has come under pressure since the company reported its third-quarter results on November 12. A widening of net losses from $191 million to $456 million, along with a 40% reduction in dividend payments to help fund growth projects and preserve balance-sheet strength, weighed heavily on investor sentiment. As a result, Northland Power’s shares have declined by more than 30% since the earnings release and are down 2.9% year to date, significantly underperforming the broader equity markets.

Against this backdrop, it is worth taking a closer look at Northland Power’s third-quarter performance, long-term growth prospects, and current valuation to assess whether the recent sell-off has created an attractive buying opportunity.

Northland Power’s third-quarter performance

In the third quarter, the Toronto-based diversified energy company reported revenue of $554 million, up 12.8% year over year. Growth across its offshore wind, onshore renewable and energy storage, natural gas, and regulated utility segments supported its top-line improvement. The company also benefited from lower development and finance expenses, while general and administrative costs remained broadly in line with the prior-year quarter.

That said, these operational gains were more than offset by fair value losses of $140 million on financial instruments and impairment charges of $527 million. These impairments were primarily related to accounting adjustments at its Nordsee One offshore wind facility, reflecting the transition from a subsidized pricing regime to market-based pricing by May 2027. As a result, net losses widened to $456 million from $191 million in the same quarter last year.

Excluding these one-time items, underlying performance remained solid. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) rose 13% year over year to $257 million, while free cash flow surged 131% to $45 million. The company also ended the quarter with strong liquidity of $1.1 billion, comprising $180 million in available cash and approximately $867 million in undrawn capacity under its corporate revolving credit facilities, leaving it well positioned to fund its ongoing growth initiatives.

Northland’s growth prospects

Electricity demand is rising as transportation becomes increasingly electrified, economies continue to expand, and investment in AI-ready data centres accelerates. In Canada, electricity demand could potentially double by 2050, while in Europe, growth is being driven by the need for greater reliability, energy security, and decarbonization.

To capitalize on these structural tailwinds, Northland is actively expanding its asset base. The company currently has approximately 2.2 gigawatts of production capacity under construction and expects to add a further 1.4–1.8 gigawatts through organic growth, value-enhancement initiatives, and asset acquisitions. To support this expansion, management plans to invest $5.8–$6.6 billion over the next five years. As a result of these initiatives, Northland expects its total production capacity to reach 7 gigawatts by the end of 2030.

In parallel, the company also focuses on optimizing its organizational structure and reducing operating expenses, initiatives expected to generate approximately $50 million in annual cost savings by 2028. Supported by these growth and efficiency measures, management targets an annualized shareholder return of around 10%. Free cash flow per share is projected to rise to $1.55–$1.75 by 2030, representing annual growth of about 6%. Overall, Northland’s long-term growth outlook remains solid.

Investors’ takeaway

The sharp correction in Northland’s share price has pushed its valuation to more attractive levels, with the stock now trading at next-12-month price-to-sales and price-to-earnings multiples of 1.8 and 12.2, respectively. The company has also reduced its monthly dividend by 40% to $0.06 per share, resulting in a forward yield of approximately 4.1%. Despite near-term volatility, I remain bullish on the stock, supported by its compelling valuation and solid long-term growth prospects.

The post Northland Power Stock Has Seriously Fizzled: Is Now a Smart Time to Buy? appeared first on The Motley Fool Canada.

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Fool contributor Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.