Pinnacle West Upgraded By BofA On Valuation

Pinnacle West Capital Corporation (NYSE: PNW) reported first-quarter earnings May 2 that failed to meet consensus expectations. Analysts expected earnings per share of 10 cents, and the Arizona-based utility holding company reported 3 cents per share.

The Analyst

Bank of America Merrill Lynch's Julien Dumoulin-Smith upgraded Pinnacle West from Underperform to Neutral and raised the price target for the stock from $84 to $86.

The Thesis

The valuation of the stock is more attractive as it trades more in line with the utility peer group multiple of 16.6x, Dumoulin-Smith said in a Friday note.

Pinnacle West has room for an increase in EPS due to operational and maintenance cost savings, and BofA expects the company to achieve 9.5-percent percent ROE, which would allow it to stay out of rate cases past the 2019 period.

BofA raised its 2019 and 2020 estimates 12 and 6 cents, respectively, but they are still below the Street consensus, which Dumoulin-Smith sees as overly optimistic. The savings from operational and maintenance costs could reach 20 cents per share if savings from planned outages are fully realized, the analyst said. 

The election for Jeff Flake's vacated Senate seat is an overhang on the stock, according to BofA. 

The Price Action

Pinnacle West shares were up 0.48 percent at $80.19 at the close Friday. 

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