We retain our Neutral recommendation on
Pinnacle West Capital Corporation
(
PNW
). Pinnacle West's first quarter 2012 loss was 7 cents per share
compared with a loss of 15 cents per share in the year-ago period
and in line with the Zacks Consensus Estimate. The loss narrowed
down considerably year-over-year due to solid operational
performance along with lower expenses. However, the company still
reported in the red owing to weather irregularities and lower
customer usage.
Going forward, we remain confident of Arizona's fundamentals,
allowing Pinnacle to grow to stronger levels as the economic
environment improves. We believe the company's increasing consumer
portfolio will aid in strengthening its revenue base in the years
ahead. Moreover, Pinnacle West expects its customer count to grow
at an annualized rate of 1.6% during the period 2012 through 2014,
which will further enhance the company's revenue base. Besides,
Arizona Public Service Company's energy efficiency programs along
with investments in resource rich areas will improve its stock
performance.
Pinnacle West also recently in mid-May received favorable approval
from the Arizona Corporation Commission for a retail rate case
settlement to be effective from July 1, 2012. The rate case
approval in less than one year after the initial June 1, 2011
filing reinforces our view that the company operates within the
purview of a regulatory friendly body - Arizona Corporation
Commission.
Pinnacle West has been a prominent player in the Arizona utility
market for more than eighty years and it has kept its growth
momentum on track by engaging in acquisitions and diversification
activities. Its recent plans to acquire
Edison International
's (
EIX
) interest in the Four Corners plant in New Mexico and develop its
solar power plants would further solidify its position in the
market. We believe going forward focus on cost structure
improvement, improvement in rate base, and higher customer count
should help it sustain a steady level of growth.
Conversely, running of power generation facilities involves risks
that could result in unscheduled outages or reduce output that
could materially affect Pinnacle West's operations. Any change in
credit rating could also affect market prices of Pinnacle's and its
primary subsidiary, Arizona Public Service's ("APS") securities and
limit its access to capital or increase borrowing costs leading to
financial losses.
Also, APS is exposed to comprehensive regulation by federal, state
and local regulatory agencies. Regulatory bottlenecks significantly
influence its business, liquidity, operational results and its
ability to promptly and fully recover costs from utility customers.
Currently our earnings estimate for Pinnacle West is witnessing an
upward trend. Per the Zacks Consensus Estimate the company's
earnings growth rate is projected to be roughly 12.9% and 5.1%, for
fiscals 2012 and 2013, respectively. The Zacks Consensus
Estimates for the second quarter and fiscal 2012 are currently
pegged at 99 cents per share and $3.37 per share, respectively.
Pinnacle West Capital Corporation presently retains a Zacks #2 Rank
which translates to a short-term Buy rating. The company competes
with
UniSource Energy Corporation
(
UNS
) and
Southwest Gas Corporation
(
SWX
).
Pinnacle West Capital based in Phoenix, Arizona provides
electricity services in the state of Arizona. The company is
involved in the generation, transmission, and distribution of
electricity from coal, nuclear, gas and oil, and renewable
resources. The company, which has a market cap of $5.61 billion,
owns or leases roughly 6,340 MW of regulated generation.
EDISON INTL (EIX): Free Stock Analysis Report
PINNACLE WEST (PNW): Free Stock Analysis Report
SOUTHWEST GAS (SWX): Free Stock Analysis Report
UNS ENERGY CORP (UNS): Free Stock Analysis
Report
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