On Sep 26, 2013 we maintained our Neutral recommendation on
Pinnacle West Capital Corp.
). The Arizona-based utility service provider currently carries a
Zacks Rank #3 (Hold).
Why the Reiteration?
Positive rate changes and a decline in infrastructure cost led
the company to deliver positive earnings surprise in the second
quarter of 2013. The reiteration, however, takes into
consideration the impact of weather variations that can affect
Pinnacle West's bottom-line. In addition, water scarcity in the
desert regions of Arizona might create operational difficulties
as Pinnacle West's generating plants require considerable
supplies of water.
The steady recovery of the Arizona economy backed by
consistent customer additions will drive Pinnacle West's
near-term top-line. The positive market fundamentals prompted the
company to maintain its projected average annual customer
increase of 2.0% for 2013 through 2015.
Pinnacle West's efforts to expand its renewable portfolio will
offer encouraging prospects given the favorable renewable climate
in the U.S. Its flagship AZ Sun program is advancing well with
developmental work progressing at the Gila Bend facility.
A strong cash flow position will support Pinnacle West's
future growth-centric initiatives while an upgrade in investment
credit rating to "BBB+" from "BBB'' by Fitch's will allow easy
access to capital markets.
Nonetheless, strict federal regulations might lead to cost
pressure thereby impacting margins. Also, work lag resulting from
retirement of old employees and hiring of new laborers might
Other Stocks to Consider
Utility players looking good at the moment are Zacks Ranked #2
Integrys Energy Group Inc.
The AES Corp.
AES CORP (AES): Free Stock Analysis Report
IDACORP INC (IDA): Free Stock Analysis Report
PINNACLE WEST (PNW): Free Stock Analysis
INTEGRYS ENERGY (TEG): Free Stock Analysis
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