We reiterate our neutral recommendation on
Pinnacle West Corporation
(
PNW
). Pinnacle West's second quarter 2012 results surpassed the Zacks
Consensus Estimate and the year-ago figure. We remain confident of
Arizona's fundamentals, allowing Pinnacle West to grow to stronger
levels as the economic environment improves.
The recent approval of the retail rate case decrease filed by
Arizona Public Service Company, the largest electric utility of
Pinnacle West, is expected to increase the company's consumer base.
We anticipate this trend to continue in the coming years with
average annualized customer growth of 2% over the period 2012
through 2015.
However, Arizona Public Service Company is subject to
comprehensive regulation by federal, state and local regulatory
agencies, which will significantly influence its operational
results.
Pinnacle West's increased capital expenditure outlook of $1.1
billion will certainly enable it to capture high-performing assets
in the future. The company's favorable renewable prospects like the
AZ Sun program and the high-quality Four Corners acquisition would
offer ample opportunities for growth. In addition, Pinnacle West's
long-term credit rating upgrade as awarded by both Moody's and
Fitch to Baa 1 and BBB+ will propel the company's stock
profile in the market and also provide increased access to capital
which would help in improving its financials in the future.
Nonetheless, the company's business is exposed to weather
variations, which lead to demand sensitivities and hence causes
volatility in revenue. Additionally, lack of access to sufficient
water could create operational difficulties and influence
margins.
Pinnacle West expects retail customer count to increase
approximately 1%. Total electricity gross margin is estimated to be
in the range of $2.13 billion to $2.18 billion. The company expects
adjusted earnings for 2012 to be in a range of $3.35-$3.50 per
share.
The Zacks Consensus Estimates for the third quarter and full
year 2012 currently stand at $2.29 per share and $3.42 per share,
respectively. The company's closest peer is Arizona-based,
UNS Energy Corporation
(
UNS
).
Pinnacle West presently has a short-term Zacks #2 Rank (Buy
rating). Based in Phoenix, Arizona, the company provides
electricity services in the state of Arizona, through its
subsidiaries. The company is involved in the generation,
transmission and distribution of electricity from coal, nuclear,
gas and oil and renewable resources.
PINNACLE WEST (PNW): Free Stock Analysis Report
UNS ENERGY CORP (UNS): Free Stock Analysis
Report
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