Tuesday, Credit Suisse upgraded Pinnacle West Capital Corp. (PNW) shares to Outperform from Neutral with a price target of $32.
Analyst Eggers sees the PNW story at the cross roads of evolving into an investable story as evidenced by the constructive rate case settlement and recent actions including forward looking transmission rates, interim rate increase and line connection adder.
The analyst said that PNW's 2009 / 2010 guidance of $2.30 / $3.00 (vs Street's $2.31 and $2.80) demonstrates that earnings power is resetting and offers a map toward earning a fair return on equity, or ROE (from mid-5%).
The analyst noted that the settlement seems to strike a fair balance between the demands (all reasonable and ordinary) of PNW, Arizona Staff, and Interveners, which should hopefully ease its way to Commission approval, although nothing is ever easy in Arizona.
Reduced rate case frequency should help alleviate the normal AZ overhang while offering earnings upside through load growth until the next rate case (the analyst assumes effective in 2012). The analyst models a conservative 2% load growth post-2010 (vs ~5% historically) and see $0.04-$0.07 of EPS leverage for every 1% move in demand - a good recovery play.
Currently, PNW is up $1.27 or 4.86% and trading at $27.42.
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