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Pinnacle West Capital (PNW)

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We have upgraded our recommendation on Pinnacle West Capital Corporation (PNW) to Outperform from Neutral owing to the company's strong financial position, improvement in credit rating along with steady inorganic growth strategy. We remain confident about Arizona's fundamentals, which are allowing Pinnacle West to achieve higher levels as the economic environment improves.

The company expects annual customer growth of approximately 2% for 2012 through 2015 will benefit its results. In addition, favorable renewable energy prospects and the recent rate case approval will ensure increased returns.

Over the last five years, the company's shares have traded in the P/E multiple range of 11.4x to 17.9x on trailing 12-month earnings. Our target price of $63.00 is based on the P/E multiple of 18.4 on 2012 EPS.

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