The Canadian Energy Stock I’m Buying Now: It’s a Steal

Despite ongoing volatility, Canadian equity markets have sustained their upward momentum, with the S&P/TSX Composite Index gaining 3.8% year to date. The benchmark currently trades just 1.8% below its all-time high, reflecting resilient investor confidence.

However, not all stocks have participated in the rally. Northland Power (TSX:NPI) has faced sustained pressure in recent months, with its shares declining roughly 25% from their 52-week high. Rising net losses and management’s decision to reduce its dividend by 40% to support capital-intensive growth projects and strengthen the balance sheet have dampened investor sentiments, weighing on the stock price.

Against this backdrop, let’s examine the company’s third-quarter performance, long-term growth prospects, and current valuation to assess whether the recent weakness presents a compelling buying opportunity.

Northland’s third-quarter performance

Northland Power owns and operates a diversified portfolio of energy assets with a total installed capacity of 3.5 gigawatts. Approximately 95% of its revenue is generated under long-term power purchase agreements (PPAs), helping insulate its financial performance from short-term market fluctuations.

In its latest third-quarter results, the company reported revenue of $554 million, up 12.8% year over year. Higher power production across offshore wind, onshore renewables and energy storage, and natural gas facilities supported topline growth. Stronger contributions from its utility segment also aided revenue growth. Additionally, lower development and interest expenses, favourable currency movements, and income from joint ventures provided incremental support.

However, net losses widened sharply from $191 million to $456 million. The $527 million in impairment charges and a $140 million fair-value loss on foreign exchange and interest rate derivatives have widened its net losses. The impairments were primarily associated with accounting adjustments at the Nordsee One offshore wind facility, reflecting its transition from a subsidized to a market-based pricing regime by May 2027.

Excluding these one-time items, adjusted EBITDA increased 13% year over year to $257 million, while free cash flow surged 131% to $45 million. The company closed the quarter with solid liquidity of $1.1 billion, including $180 million in cash and approximately $867 million in available capacity under its corporate revolving credit facilities. This healthy liquidity position provides financial flexibility to fund its development pipeline and support future growth initiatives.

With operational performance stabilizing and balance-sheet strength intact, let’s now turn to its growth prospects.

Northland’s growth prospects

Amid steady economic expansion, accelerating transportation electrification, and rising investments in AI-ready data centres, electricity demand is poised for structural growth. In Canada, demand could potentially double by 2050, while in Europe, the push for grid reliability, energy security, and decarbonization continues to drive renewable capacity additions. These long-term trends create a favourable backdrop for Northland Power.

To capitalize on this opportunity, the company is actively expanding its asset base, with 2.2 gigawatts of generation capacity currently under construction. Management also expects to add 1.4–1.8 gigawatts through organic growth initiatives, asset optimization, and selective acquisitions. As a result, total installed capacity could exceed 7 gigawatts by 2030, implying an annualized growth rate of approximately 16%. To execute this plan, Northland has earmarked $5.8–$6.6 billion in capital investments.

Supported by this expansion pipeline, management projects free cash flow per share to reach $1.55–$1.75 by 2030. At the midpoint, this would represent an annualized growth rate of roughly 5.7%, reflecting steady, long-term value creation. Overall, the company’s growth outlook appears constructive, underpinned by strong industry tailwinds and a visible development pipeline.

Investors’ takeaway

The recent pullback in Northland Power has meaningfully compressed its valuation. The stock currently trades at a next-12-month price-to-sales multiple of 1.8 and a forward price-to-earnings multiple of 12.2, suggesting a more attractive entry point than historical levels.

Following the 40% dividend reduction, the company now pays a monthly dividend of $0.06 per share, yielding approximately 3.7%. While the payout reset may have weighed on near-term sentiment, it strengthens balance-sheet flexibility and supports funding for long-term growth initiatives.

Given its discounted valuation, visible development pipeline, and solid long-term industry tailwinds, Northland Power appears well-positioned for patient investors. For those with an investment horizon of three years or longer, the stock could offer a compelling combination of capital appreciation potential and steady income.

The post The Canadian Energy Stock I’m Buying Now: It’s a Steal appeared first on The Motley Fool Canada.

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More reading

• A Dividend Stock Down Big: Here’s Why I’m Watching it
• Outlook for Northland Power Stock in 2026
• Monthly Dividend Leaders: 3 TSX Stocks Paying Dividends Every 30 Days
• 3 Top Utility Sector Stocks for Canadian Investors in 2026

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.