On Apr 12, 2013, the shares of electric utility Pinnacle West Capital Corp. (PNW) soared to a new 52-week high of $59.54 driven by the company’s high-quality transmission and renewable endeavors. Pinnacle West had an impressive run and reported earnings surprise in three of the last four quarters leading to an average beat of 15.65%.
Healthy customer expansion and a sizeable mix of midstream as well as renewable assets pushed the stock to a new high. The company’s flagship AZ Sun program has been the major highlight in 2012, which has strengthened Pinnacle West’s position as the frontrunner in the renewable business in Arizona.
It has already added 148 megawatts (MW) of generation capacity to its portfolio in 2012. The main growth driver for the company was the increasing installations by residential consumers, which rose to 7,500 in 2012 compared with less than 6,000 in 2011.
Meanwhile, Pinnacle West’s transmission operations are also set to provide some thrust to its business. It plans to bring online 275 miles over the next ten years. These will allow the company to access outside markets like California as well.
The present valuation also makes the stock attractive. Shares of Pinnacle West currently trade at 17.00x 12-month forward earnings, a 3.0% premium to the peer group average of 16.51x. Its price-to-book ratio of 1.60 is at a 4.2% discount to the peer group average of 1.67.
We expect long-term earnings growth of 5.53% for Pinnacle West. The Zacks Consensus Estimate for 2013 is currently at $3.57, an estimated 1.9% rise from $3.50 in 2012.
The company at present holds a Zacks Rank #2 (Buy). Among other utilities we prefer Zacks Ranked #1 (Strong Buy) Brookfield Infrastructure Partners L.P. (BIP), Pike Electric Corp. (PIKE) and Empresa Nacional Electricidad SA (EOC).
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