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Pinnacle West's Systematic Capital Investments Bode Well

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Pinnacle West Capital Corporation (PNW - Free Report) is well positioned to benefit from economic improvement in its service territories.

The Zacks Consensus Estimate for 2020 earnings is pegged at $4.86 per share, which reflects year-over-year growth of 1.89%. Additionally, long-term earnings growth of the company is pegged at 4.40%.

In the past three months, shares of the company have increased 4% against the industry’s decline of 0.6%.

What’s Driving the Stock?

Pinnacle West’s investments in clean power generation, transmission & distribution lines will help it serve customers efficiently. Improving economic conditions are also driving demand.

The company projects capital expenditures of $1,331 million, $1,650 million and $1,725 million for 2020, 2021 and 2022, respectively. The company expects to invest heavily in infrastructure upgrades to serve its expanding customer base. Of the total planned capital expenditure, the company aims to invest $1.45 billion and $0.6 billion to upgrade and strengthen its distribution and transmission systems, respectively, in 2020-2022 time period.

Apart from expanding its utility infrastructure, Pinnacle West continues to focus on enhancing its renewable capacity. As of Dec 31, 2019, Pinnacle West’s renewable diverse portfolio of existing and planned renewable resources amounted to 1,923 MW, which includes solar, wind, geothermal, biomass and biogas. Of this portfolio, 1,828 MW are currently in operation and 95 MW are under construction. The company plans to invest $1.66 billion in clean generation in the 2020-2022 time period.

The company’s subsidiary — Arizona Public Service — is the largest and longest-serving electric utility provider in Arizona. The state is witnessing a gradual economic recovery on the back of the rapidly-developing Phoenix Metropolitan Area. The Metro Phoenix region continues to have job growth above the national average resulting in demand growth for utility services from commercial and residential sector. In 2019, employment in Metro Phoenix increased 2.9% compared with 1.6% for the entire United States.

Pinnacle West carries investment grade ratings of A3 and A- by Moody’s and S&P, respectively. A higher rating denotes higher credit worthiness, thereby ensuring access to cheap financing options. The solid credit rating will allow the company to secure funds from the market at favorable conditions.

However, its growth could be deterred by fluctuations in commodity prices, stringent environmental regulations and unplanned outages in nuclear generation facilities.

Zacks Rank & Stocks to Consider

The company currently has a Zacks Rank #3 (Hold). Some better-ranked players in the same sector are Duke Energy Corporation (DUK - Free Report) , Sempra Energy (SRE - Free Report) and Atmos Energy Corporation (ATO - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Duke Energy, Sempra Energy and Atmos Energy have trailing four-quarter positive earnings surprise of 4,70%, 6.26% and 1.91%, on average, respectively.

Long-term earnings growth rate Duke Energy, Sempra Energy and Atmos Energy are pegged at 6.53%, 5.80% and 7.20%, respectively.

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