When Pinnacle West Capital Corporation (NYSE:PNW) released its most recent earnings update (30 June 2019), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Understanding how Pinnacle West Capital performed requires a benchmark rather than trying to assess a standalone number at one point in time. Below is a quick commentary on how I see PNW has performed.
How PNW fared against its long-term earnings performance and its industry
PNW's trailing twelve-month earnings (from 30 June 2019) of US$503m has increased by 7.6% compared to the previous year.
Furthermore, this one-year growth rate has exceeded its 5-year annual growth average of 6.0%, indicating the rate at which PNW is growing has accelerated. What's the driver of this growth? Let's see whether it is only owing to industry tailwinds, or if Pinnacle West Capital has seen some company-specific growth.
In terms of returns from investment, Pinnacle West Capital has fallen short of achieving a 20% return on equity (ROE), recording 9.8% instead. Furthermore, its return on assets (ROA) of 4.1% is below the US Electric Utilities industry of 4.5%, indicating Pinnacle West Capital's are utilized less efficiently. And finally, its return on capital (ROC), which also accounts for Pinnacle West Capital’s debt level, has declined over the past 3 years from 6.0% to 4.9%. This correlates with an increase in debt holding, with debt-to-equity ratio rising from 81% to 104% over the past 5 years.
What does this mean?
While past data is useful, it doesn’t tell the whole story. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? I suggest you continue to research Pinnacle West Capital to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PNW’s future growth? Take a look at our free research report of analyst consensus for PNW’s outlook.
- Financial Health: Are PNW’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2019. This may not be consistent with full year annual report figures.
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