We retain our Neutral recommendation on
Pinnacle West Capital Corp.
). The Arizona based utility play presently holds a Zacks Rank #3
Why the Reiteration?
Pinnacle West posted inspiring earnings results in the first
quarter of 2013, widely surpassing our expectation. The company
outperformed on the back of positive non-fuel rate changes and
favorable retail sales.
Nevertheless, our reiteration takes into consideration the
impact of the Obama climate plan which calls for reduction in
coal-fired operations in the future. This will inevitably take a
toll on Pinnacle West's coal-generation business, which forms a
major part of its operational mix.
Also, the lingering weak economic fundamentals in the U.S.
will continue to prevent electric prices from gaining momentum
thereby deterring Pinnacle West's opportunities.
Yet, the company's gradual shift to renewable energy sources
will bode well for its future broad growth objectives. Pinnacle
West has a series of solar investments in the pipeline in Arizona
which will elevate its clean energy generation share to 15% by
2025. This will be further supported by consistent customer
additions expected in the next 3 years.
To expand its market accessibility, the company has also
ventured into developing transmission assets. Pinnacle West's
ambitious 10-year plan to build a 275-mile line will strengthen
its position in the energy industry. Apart from this, the company
is also developing transmission lines to connect far off cities
like California and Phoenix.
On the flip side, the company needs to watch out for rising
operating expenses resulting from regulatory compliance cost.
Other Stocks to Consider
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PINNACLE WEST (PNW): Free Stock Analysis
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