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We retain our Neutral recommendation on Pinnacle West Capital Corp. (PNW - Analyst Report). The electric utility service provider at present holds a Zacks Rank #2 (Buy).

Why the Reiteration?

Pinnacle West’s series of back-to-back solar projects in Arizona under its flagship AZ Sun program will substantially add to future profitability. By the end of 2013, the company’s generation capacity is expected to reach 700 megawatts ("MW"). In addition, a gradual recovery in the residential, commercial and industrial markets will complement Pinnacle’s rising generation portfolio.

Its midstream endeavors are also likely to create outlets for the company’s services to regions outside Arizona thereby expanding its revenue base. At present, Pinnacle is progressing well with the development of two transmission lines – the Delaney to Palo Verde line and the North Gila to Hassayampa line – which will deliver renewable energy to the cities of California and Phoenix.

Furthermore, the company’s strong financial position will support its ongoing growth-related projects. An incremental dividend also helps in retaining shareholder confidence in the stock.

However, signs of increased operating and input costs as well as weather irregularities are negatives to watch out for. Moreover, stringent pro-environment regulations will continue to add to the company’s cost.

Other Stocks to Consider

Besides Pinnacle West, other utility operators currently performing well are Brookfield Infrastructure Partners L.P. (BIP - Snapshot Report), Pike Electric Corp. (PIKE - Snapshot Report) and Empresa Nacional Electricidad SA (EOC). All of the above currently carry a Zacks Rank #1 (Strong Buy).

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