On Monday, UBS made an adjustment to its stance on Pinnacle West Capital (NYSE:PNW), changing the stock's rating from Sell to Neutral and increasing the price target to $71 from the previous $68.
"We see the key catalysts for our Sell call having now played out and believe the stock appears reasonably valued at a 3% discount to peers," said UBS analysts.
Pinnacle West Capital, which operates primarily through its subsidiary, Arizona Public Service, recently experienced a constructive outcome in its rate case, which granted the company 67% of its requested revenue increase. This decision, along with updated financial guidance projecting 5-7% earnings per share (EPS) growth based on 2024 estimated guidance of $4.60-$4.80, has served to realign investor expectations.
The company is expected to leverage regulatory momentum in Arizona as it navigates a significant docket this year. The focus will be on reducing regulatory lag and preparing to file its next general rate case. Arizona's robust sales and customer growth, projected at 4-6% long term, positions Pinnacle West Capital favorably to translate this into earnings growth and to solidify investor confidence in its ability to achieve a stable and predictable 5-7% growth rate.
However, UBS also notes potential challenges ahead for Pinnacle West Capital. Execution risks associated with reducing regulatory lag remain, and the upcoming election cycle in Arizona could introduce uncertainty, with three out of five seats on the Arizona Corporation Commission up for election. These factors could influence the company's performance and are considered in the tempered outlook despite the upgrade.
InvestingPro Insights
As Pinnacle West Capital (NYSE:PNW) garners a more neutral outlook from UBS, the latest data from InvestingPro provides a deeper dive into the company's financial health and growth prospects. With a market capitalization of $8.83 billion and a P/E ratio standing at 16.23, Pinnacle West Capital appears to be trading at a reasonable valuation relative to its earnings. This aligns with UBS's assessment of the stock being valued in line with its peers.
InvestingPro Tips highlight that Pinnacle West Capital operates with a significant debt burden but has consistently maintained its dividend payments for 32 consecutive years, demonstrating a commitment to returning value to shareholders. Additionally, the company has raised its dividend for 12 consecutive years, which could be an attractive point for income-focused investors. However, it's worth noting that analysts have recently revised their earnings downwards for the upcoming period, which could be a headwind for the company's stock price performance.
From a dividend perspective, Pinnacle West Capital's yield stands at an appealing 4.91%, with a modest dividend growth of 1.73% over the last twelve months. This may provide a stable income stream for investors, especially in a market where yield is increasingly sought after. The company's next earnings date is set for May 1, 2024, which will be a critical time for investors to assess Pinnacle West's financial performance and strategic direction.
For those looking to explore additional insights and gain a more comprehensive understanding of Pinnacle West Capital's investment potential, InvestingPro offers further tips and data points. There are currently 6 additional tips listed on InvestingPro for PNW, which can be accessed by visiting: https://www.investing.com/pro/PNW. To enhance your InvestingPro experience, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.