On May 10, 2016, we have issued an updated research report on Pinnacle West Capital Corporation PNW. Coal continues to dominate Pinnacle West’s generation mix, making the company highly susceptible to stringent regulations by federal, state and local regulatory bodies. However, the company is presently focusing on increasing energy production from renewable sources to lower its dependence on coal. In 2016, the company plans to spend $110 million for renewable assets.
We remind investors that the ongoing recovery in Arizona’s economy, fueled by the fast growing Phoenix Metropolitan Area, is driving Pinnacle West’s performance. The company expects to witness better growth prospects this year in terms of higher employment numbers and improved wages, which will, in turn, result in an increase in consumer spending, along with the expectations of 2–3% annual growth in the retail customer base during the 2016–2018 time frame.
In addition, Pinnacle West’s consistent investments in traditional generation, transmission & distribution lines will boost its performance over the long haul. Out of the total projected outlay of $3.6 billion, the company expects to spend around $464 million in transmission, $1,100 million in distribution and $736 million in traditional generation business in the 2016–2018 period. These initiatives will allow Pinnacle West to continue providing reliable services to its customers.
Since the company’s operations are fully regulated, it has to count on regulatory authorities for the timely recovery of investments through rate relief. Moreover, Pinnacle West’s operations are exposed to fluctuations in commodity price and transportation cost of electricity and natural gas. Potential volatility in market prices of fuel, electricity and other renewable energy commodities could create operational risks for the company.
Zacks Rank & Key Picks
Pinnacle West currently has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the utility-electric power space include Avangrid, Inc. AGR Spark Energy, Inc. SPKE and Avista Corporation AVA. While both Avangrid and Spark Energy sport a Zacks Rank #1 (Strong Buy), Avista Corporation carries a Zacks Rank #2 (Buy).
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