Morningstar | Pinnacle West Reports Flat Earnings; Roof-Top Installations Expected To Decline With New Rate Design
We are reaffirming our $80 fair value estimate and narrow moat rating after Pinnacle West reported flattish 2018 second-quarter earnings but reaffirmed its full-year earnings guidance range of $4.35-$4.55 per share. Our 2018 EPS estimate of $4.45 and five-year EPS annual growth rate of 5.5% are unchanged.Pinnacle West reported earnings of $1.48 per share for the recently ended quarter versus $1.49 per share in the same period last year. O&M was a $0.23 per share negative variance for the recently ended quarter versus last year, but it appears to be primarily due to timing of scheduled maintenance at the Four Corners coal-fired plant. We expect O&M to be relatively flat or at least a smaller negative variance the remainder of the year.
There is no sign of the economy in Pinnacle West's service territory cooling off. In 2017, Maricopa County, home to Phoenix, was the fastest-growing county in the U.S. for the second straight year. Nonresidential vacancy rates continue to decline and single-family and multifamily housing permits remain strong. Wholly owned Arizona Public Service had customer growth of 1.6% in the recently ended quarter and we expect retail customer growth of approximately 2% annually due to the strength of the regional economy.
APS expects roof-top solar installations and energy efficiency will reduce growth in electricity demand to 0%-1%. However, we expect net growth to be in the higher end of this range as the installation of grandfathered roof-top solar installations eligible for net metering decline with the implementation of the new rate design pursuant to the 2017 regulatory review.
Our forecast for average return on parent equity is approximately 50 basis points higher than management's 9.5% goal. We have a high level of confidence that Pinnacle West will exceed its goal, given the continued strong economic growth in the region, management's ability to control costs, and Arizona's constructive regulatory framework.
Pinnacle West Capital is a holding company. Through its subsidiary, Arizona Public Service Company, the company provides either retail or wholesale electric service to most of the State of Arizona, with the exceptions of about one-half of the Phoenix metropolitan area, the Tucson metropolitan area and Mohave County in northwestern Arizona. The company's business segment is its regulated electricity segment, which consists of regulated retail and wholesale electricity businesses (primarily electric service to Native Load customers) and related activities, and includes electricity generation, transmission and distribution.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.