Monday, KeyBanc Capital upgraded IdaCorp, Inc. (IDA) shares to Buy from Hold with a price target of $33. The brokerage increased its 2009 EPS estimate to $2.60 from $2.40, and its 2010 estimate to $2.75 from $2.55.
Analyst Paul Ridzon noted that IDA's Idaho regulatory settlement acts to put a floor of 9.5% on the Company's earned ROE in the Idaho jurisdiction, where about 95% of regulated assets are held. Further, this ROE is calculated on the year-end equity balance, which the analyst views favorably during a period of elevated capital expenditure. The settlement offers earnings stability through 2011.
The analyst said that historically IDA has seen under-earnings and earnings volatility driven by regulatory lag and variability in hydro conditions. After updating estimates to incorporate IDA's Idaho regulatory settlement, the analyst upgraded his rating to Buy with a $33 price target.
Based upon the analyst's revised 2010 estimate, shares of IDA sell at an 8% discount to the group average P/E of 12.0x. The analyst believes shares warrant an average valuation given stability of earnings under the settlement and attractive investment opportunities. The analyst derived his price target of $33 by capitalizing his 2010 estimate of $2.75 at the group average P/E multiple of 12.0x.
Currently, IDA is up $0.95 or 3.11% and trading at $31.46.
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